Reliance Sets Up Rs 500cr Fund For Acquisitions

Reliance Industries, the Rs 8,730 crore textiles-to-petrochemicals major, is understood to have set up a Rs 500 crore fund to acquire companies. However, the fund will be managed by another group company.

Reliance will invest Rs 100 crore every year for the next five years in this fund. The money will be used to acquire companies in various fields, not just in RILs core areas. No merchant bankers have been appointed for any deal and the Ambanis are believed to be using their contacts in the industry to hunt for prospective targets.

A Reliance spokesperson denied any such move. No corpus has been set up, he added. However, industry sources said the fund has already been set up. A group meeting is reportedly slated later this month to discuss issues related to the fund. Reliance is one of Indias most cash-rich companies, with an annual cash flow of over Rs 3,000 crore and current investments worth Rs 2,915.76 crore.

 

Most of these funds are being used to finance the companys ambitious expansion plans. RIL is investing over Rs 5,000 crore in a petrochemicals complex at Jamnagar, near its refinery. Funds are also being pumped into group companies like Reliance Petroleum, Reliance Power, Reliance Telecom and Reliance Ports and Terminals Ltd.

A fund for acquisitions makes sense as various companies have approached Reliance to buy them out. Most of these are polyester and small-time petrochemical companies. Reliances stand so far has been to steer clear of acquisitions as it did not find many proposals attractive. Most of the polyester and petrochemical companies have poor technology and low economies of scale and do not offer any real value to a giant like Reliance.

However, Reliance has recently been willing to consider some bail-out requests, including one by Baroda Rayon Corporation. Reliance has sent a proposal to Industrial Credit and Investment Corporation of India to enter into a contract manufacturing agreement with the company for its polyester filament yarn production.

Reliance will buy the output from Baroda Rayon and pay a fixed cost covering conversion charges to the company.

Industry sources said the fund could also be used to enable Reliance to enter into similar agreements with other companies, thereby buying their capacity without taking over liabilities like labour, old plants and bad loans.