Mumbai: India’s most valuable company by market value, Reliance Industries Ltd, or RIL, strengthened its war chest by selling 33 million of its own shares to raise Rs3,465 crore, in its third and largest such fund-raising exercise so far.
The sale comes exactly a week after the company raised Rs2,675 crore by selling treasury stock, and it is making analysts edgy as it signals RIL’s strong and unflagging intent to fund its takeover bid for bankrupt Dutch chemical maker, LyondellBasell Industries AF.
In three rounds since September, when it raised Rs3,188 crore, RIL has raised Rs9,328 crore by selling its own shares. This is nearly half the sum raised by all the initial public offerings on the Indian bourses in 2009.
RIL still holds nearly 120 million treasury shares. At Monday’s closing share price, these are worth Rs12,978.6 crore; that means RIL has headroom to raise funds further.
Such aggressive selling by the oil-to-yarn and retail conglomerate sucks out a fair amount of liquidity from the markets and may affect either the new public offers lined up by many firms as well as the government for a few state-owned firms or the secondary market at large, analysts said.
“Reliance Industrial Investments and Holdings Ltd, a wholly owned subsidiary of ...(RIL), is the beneficiary of the (Petroleum) Trust” which sold RIL’s shares at a price of Rs1,050 a share, said an RIL statement.
Treasury stock refers to the shares RIL owns in itself. This was created in 2002 when RIL merged one of its subsidiaries back unto itself.
UBS Securities India Pvt. Ltd acted as the sole arranger, added the statement by the Mukesh Ambani-controlled energy firm but didn’t explicitly specify the purpose of fund-raising or the buyers of its equity stake. The shares were sold to five buyers, UBS AG’s chief executive Manisha Girotra told news agency Bloomberg over phone but declined to name them.
RIL’s shares closed 1.85% lower on the Bombay Stock Exchange at Rs1,081.55 a piece—an investor reaction following every round of treasury stock sale—falling more than the bellwether index Sensex that ended at 17,526.71 points, 0.08% lower.
International rating agency Moody’s Investors Service, Inc. reaffirmed its Baa2 ratings and stable outlook on RIL on 11 January in the wake of its equity sale. “While the equity-raising exercise is credit-positive, it does not have an immediate impact on the rating, as Moody’s expects the company to use the proceeds for a potential takeover of LyondellBasell,” said Ivan Palacios, Moody’s analyst, voicing popular sentiment on the end-use of this money even as RIL stays tight-lipped.
RIL had made a preliminary, non-binding bid for LyondellBasell in mid-November, with street estimates initially pegging the valuations at $10-12 billion (Rs45,400-54,480 crore). The Wall Street Journal had reported last week that RIL had raised its bid to $13.5 billion along with “super-voting rights" but that failed to win over the LyondellBasell management, which has consistently preferred its original restructuring plan to RIL’s offer.
This reorganization plan— currently filed in the US bankruptcy court of New York and due for a hearing next on 10 February—values the petrochemical maker at $15.5 billion.
“The share sale has to happen in tranches since there may not be enough market appetite to offload all of it in one go,” said a person in the know who is close to developments in RIL, adding that further rounds of treasury stock sale were not ruled out. “Since the company has been drawn into a competitive bid scenario, it has to play it till the outer edge of its estimated valuation is reached. That has not happened so far.”
Although it is unclear at this stage whether RIL will sweeten its offer further and settle for a higher valuation, the prospect of such a move is making analysts uncomfortable. “We need a lot more clarity here. They had $4 billion cash before and have added another $2 billion now. What’s the rationale of raising so much?,” asked Deepak Pareek, energy analyst with Mumbai-based brokerage Angel Broking Ltd who says he is comfortable with a $12-13 billion valuation and anything above $13.5 billion seemed a little overboard.
A Mumbai-based sector analyst with a foreign brokerage said the intensified efforts and fervour in RIL’s acquisitive intent was “a little scary” and wanted to know “what was the hurry when the next hearing is in February?”
“I will be worried if they start matching or bettering the $15.5 billion offer by the existing creditors under the current reorganization plan”, added this analyst on condition of anonymity.
The person in the know cited earlier said the sale was also “a demonstration of strength” in fund-raising and a display by RIL of its huge cash reserves. “For a cash-strapped company looking to exit Chapter 11 (bankruptcy) filing, this could make RIL offer look even harder to pass up. Then, treasury stock was always kept aside for some growth opportunity and that opportunity is now.”
Another reason for RIL’s successive sales of treasury stock could be to reduce the possible tax outgo on such sales when the new tax code kicks in. Under the proposed tax code that the government plans to introduce, such transactions will attract capital gains tax. However, an RIL spokesman said while theoretically this could be correct, it is far-fetched to assume this is the motive behind the share sale.