Mumbai: Mukesh Ambani is looking for around $3.53 billion (Rs15,532 crore) in foreign loans to subscribe to a preferential allotment of convertible warrants by Reliance Industries Limited (RIL), according to sources in the banking industry who did not wish to be identified.
This allotment will increase the holding of the promoters and their associates in Reliance to 54.6% from 50.59%. A RIL spokesperson, when contacted, declined to comment.
On Saturday, the board of RIL had approved the issue of 120 million preferential warrants to the company’s promoters for a total sum of Rs16,800 crore. The promoters of RIL are believed to be raising their holding in the company to ward off any possible attempt at a hostile takeover.
Although Ambani’s net worth as estimated by Forbes is $18.5 billion, much of this comes from his holding in Reliance, controlled through the family and investment companies. The amount Ambani needs to raise could come down by $500 million if the Petroleum Trust, the single largest shareholder in RIL with a 7.51% stake, and which is controlled by RIL itself, decides to acquire some of the equity being issued.
The funds are being raised overseas, said the sources, because few banks in India would be willing to fund $3-$3.5 billion as loans against shares. India’s central bank has guidelines that bar banks from deploying a certain portion of their portfolio as loans against shares; the Reserve Bank of India believes these are high-risk loans and need to be controlled. By raising money overseas, Ambani will also have to pay a lower rate of interest, under 10%, as compared to the 15-18% Indian banks charge on such loans.
Ambani has at least 18 months to arrange the money; currently only 10% of the value of the shares, or $350 million, has to be paid to subscribe to the warrants that are being offered to the promoters.
The amount being invested by Ambani is the largest preferential equity infusion ever done by a promoter in a publicly traded company in India. At the end of last week, RIL had a market capitalisation of $44.5 billion.