Mumbai: Anil Ambani’s holding in group company Reliance Infrastructure Ltd (R-Infra) is set to rise significantly, with a company controlled by him, AAA Project Ventures Pvt. Ltd, exercising its option to convert 23.3 million warrants allotted to it by R-Infra into equity shares.
Having already committed 25% of the consideration upfront to secure the convertible warrants, AAA Project Ventures will have to invest another Rs1,623 crore to get the equity shares in R-Infra.
Upon conversion of the warrants, the promoter group’s holding in R-Infra—whose businesses range from executing engineering, procurement and construction, or EPC, contracts to building and operating roads and Metro railway— will rise to 47.70% from 42.73% on 30 September 2010.
Going by the latest shareholding pattern available on the Bombay Stock Exchange (BSE), AAA Project Ventures currently holds a 42.10% stake in R-Infra.
AAA Project Ventures was allotted 42.9 million convertible warrants on 9 July 2009, out of which it converted 19.6 million into equity shares in April.
According to a stock market filing, a committee of R-Infra’s directors will meet on Friday to consider allotment of equity shares to AAA Project Ventures at a price of Rs928.89.
R-Infra’s shares gained 0.33% on Thursday’s trade on BSE to Rs859.50 a share even as the bourse’s benchmark equity index, Sensex, lost 0.57% to close at 20,184.74 points.
Although the conversion price is 8.07% more than R-Infra’s stock closing price on BSE on Thursday, the decision to go ahead and secure shares of the company may have been triggered by the fact that the 18-month window, after which the warrants lapse, closes on 9 January.
If the warrants are not converted before that date, the promoters will have had to forfeit the 25%, or around Rs541 crore already paid in July 2009 when the warrants were issued.
The conversion price for the said warrants represents a 15.6% discount to the closing price of R-Infra’s shares (Rs1,101) on BSE on 9 July 2009, the day they were allotted.
Analysts say that the conversion of warrants by the promoters at this stage has a number of benefits for the company.
“If the warrants were allowed to lapse, it would send a wrong signal to the market. Instead, Ambani might be looking to ramp up his stake in R-Infra at the lowest possible valuation as the general perception is that the company’s stock prices have bottomed out,” said S.P. Tulsian, a Mumbai-based independent stock market analyst. “Also, R-Infra is in need of money for its projects and the cash infused by promoters can be used for that.”
Various businesses of R-Infra are in different stages of development with the expected turnover from them varying between Rs1,000 crore for the roads division to Rs300-400 crore for the metro rail and power transmission businesses in the current fiscal.
Since 9 July 2009, R-Infra’s shares have lost 21.93% on BSE; Sensex has risen 46.72% during this period.
The fair value for the stock, according to Tulsian, is Rs1000.