Reliance Industries Limited (RIL) recently expressed its resolve to become a net-zero-debt company on 30th April, in its board meeting. The Mukesh Ambani led conglomerate said that that it will consider a rights issue of equity shares to achieve the said goal.
Reliance Industries is India’s highest valued listed firm with a market capitalization of Rs 9.25 lakh crore. It has a gross debt of over Rs 3 lakh crore, and net debt of over Rs 1.5 lakh crore, making it one of the most indebted companies in the country. Mukesh Ambani led RIL is also one of the most cash-rich companies with over Rs 1.3 lakh crore cash in hand. The aim to make it a 'zero net debt' firm was also expressed by the chairman back in August 2019.
On 27 April 2020, RIL issued a notice to Stock Exchanges with its proposal to issue equity shares to existing shareholders on Rights basis, subject to law and regulation by RIL. Though no detail was shared regarding the size of the issue or its proposed equity dilution or date, considering RIL’s current market cap (of Rs 9.25 lakh crore) and its large retail shareholder, one can expect the offering to help the company cut its debts.
Analysts believe that the move reflects the promoter’s constant faith in the medium to long term prospects of various businesses. Commenting on it - Ajay Bodke, CEO, PMS PrabhudasLilladher said, “With consumer focusing businesses like digital telecom & retail achieving global scale, with global behemoths vying with each other to partner RIL; this is an apt opportunity for current shareholders to participate in the likely value unlocking of various businesses over the next couple of years.”
In addition to the prospective rights offering, Reliance Industries also announced a deal to sell a 10% equity stake in its telecom venture Reliance Jio for Rs 43,574 crore to Mark Zuckerberg’s Facebook Inc., earlier in the week. Since its inception, Reliance Jio has grossed investments worth Rs 2 lakh crore and is Mukesh Ambani’s big bet on India’s digital future. The company is also in talks with oil giant Saudi Aramco to sell it an equity stake in its flagship oil and gas business.
After opening with gains RIL share price has dipped by almost 2% to trade at Rs 1404 per share.
A Rights Issue is an issue of shares offered by a listed company at a special or discounted price to its existing shareholders in proportion to their current holdings. Typically, companies issue a rights offering to raise additional capital or to meet its current financial obligations. A Rights Issue of Shares increases the equity base of an organization and at the same time provides it with better leveraging opportunities.