Mumbai: Reliance Industries Ltd, or RIL, India’s most valuable company by market capitalization, has raised around Rs29,000 crore (or $6.17 billion) in the October-December quarter, and the big question among analysts tracking the company is, “what for?”
The amount includes money put in by the company’s main promoter and that raised through debt. An email sent to RIL on the use of this money remained unanswered till late Friday.
In the past six weeks, RIL has raised around Rs12,000 crore in debt, according to some analysts. A senior executive at RIL confirmed that the company had indeed raised this amount in debt, but asked not to be identified because he is not the company’s official spokesperson.
In October, just a few weeks before the company started raising this debt, it received a cash infusion of Rs16,824 crore from its owner and promoter Mukesh Ambani, through the conversion of 120 million share warrants into equity at Rs1,402 a share.
From the front: Mukesh Ambani, promoter of RIL, himself pumped in Rs16,824 crore in October through conversion of share warrants. Abhijit Bhatlekar / Mint
Over the past fortnight, Edelweiss Capital Ltd and JPMorgan Chase and Co. issued statements that they together arranged about Rs3,000 crore for RIL through non-convertible debentures or NCDs. ICICI Bank Ltd and Axis Bank Ltd separately raised Rs1,000 crore each for RIL, the analysts said. Details of the remaining Rs7,000 crore raised from the debt market were not available. Rating agency Crisil Ltd had in November assigned an AAA rating, the highest, to RIL’s Rs10,000 crore non-convertible debentures.
What does RIL need such large sums of money for?
At a time when most companies are scrambling for cash because of the global credit crunch, the second largest oil refiner and the largest petrochemicals maker in the country has been piling cash for reasons that aren’t entirely clear from the outside.
Six analysts Mint spoke to gave several possible reasons behind RIL’s strategy: hoarding money for future projects; making up for treasury losses incurred by trading in crude oil futures trading; and to fund potential acquisitions. These analysts, who track the Reliance Industries stock for various foreign and Indian brokerages declined to be named as they are not authorized to speak to the media.
The RIL executive mentioned in the first instance, and another executive at the company who also asked not to be identified, independently provided the company’s rationale for raising money: to position itself for the future and finance its exploration and production activities.
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“So far, we have invested mostly equity in both our projects (Jamnagar refinery and the Krishna-Godavari basin, or KG basin). Now, we are looking to put in some money through the debt route for the balance investment in these,” the second RIL executive said.
The company is also planning “for future projects that cannot be disclosed for now,” he added.