The way the Reliance Industries financial machine operates is often a mystery.
The latest example: the Mukesh Ambani-controlled company raised $1 billion through the sale of 10-year bonds on Friday. This from a company that now has some $14 billion of cash and cash equivalents on its balance sheet and which is using some of this excess cash to buy back shares from local investors. So why return cash to investors on the one hand and raise more cash from the bond markets on the other?
The key factor is that the company is buying back shares from its rupee resources while it is raising fresh dollar resources. In a Mark To Market piece published in
Mint in December, Mobis Philipose had written that
Reliance had raised $3.5 billion through dollar-denominated term loans since August 2010. The latest bond sale now takes that figure up to $4.5 billion. It seems that the company is in effect switching from rupees to dollars on its balance sheet.
Reliance has typically timed the bond sale very well, just as risk appetite improved in the global markets in January. But why is the money being raised when the buyback signals that there is already too much cash on its balance sheet? One clear reason to do so is that Reliance is keen on buying foreign assets for which it needs dollar funds. The company has already bought shale gas assets in the US in three separate deals. It is thus quite likely that Reliance is restocking its war chest for another international acquisition.
During a meeting of top business leaders with Prime Minister Manmohan Singh in December, Mukesh Ambani reportedly assured the PM that Reliance would invest Rs 70,000 crore in Indian projects. That is a number quite close to what analysts have been saying. But the rush to raise foreign debt also indicates that he could also be looking at more investments offshore, which is an indication of both the need to derisk Reliance as well as the state of the investment climate in the country.