Mumbai: In a move that is expected to save its promoters roughly Rs3,074 crore, Reliance Infrastructure Ltd (R-Infra) informed the stock exchanges on Friday that its board will on Sunday consider allotting to its promoters 43 million shares, or equity-related securities. According to a company spokesman, the allotment will be done at Rs925 a share.
R-Infra is promoted by billionaire industrialist Anil Ambani. Ambani and his associate firms currently hold 43 million share warrants that have a conversion to equity deadline of 19 July at Rs1,822 per share, almost twice the price per share that is being proposed to the board on Sunday for fresh allotment of securities.
An R-Infra statement to the Bombay Stock Exchange (BSE) said the board meeting will “consider the preferential allotment of equity and/or equity-related securities entitling up to 4.3 crore equity shares, to the promoters and/or other investors against cancellation” of the existing stack of equal number of warrants.
Mint had reported on 21 May that R-Infra promoters were unlikely to convert their existing warrants as the company’s stock price was about half the conversion price.
The previous share warrant scheme would have required an investment of Rs7,835 crore by the promoters had they chosen to convert the warrants. They had already paid 10% of that amount in January 2008 when the warrants were issued.
If the board approves the new proposal, the promoters will have to infuse Rs3,977.50 crore at Rs925 a share for 43 million shares, besides forfeiting Rs783.50 crore on the previous warrants. This puts their total cost at Rs4,761 crore, Rs3,074 crore less than what the promoters would have paid for converting the warrants issues earlier.
Till February, the promoters were required to pay 10% of the total investment at the time of warrant allotment under the norms of the capital market regulator. A change in norms increased that amount to 25% beginning March. The upfront amount is forfeited if promoters forego the option of converting the warrants into equity.
“This works out to be far cheaper and fund infusion seems more certain than before, when conversion of warrants seemed doubtful. The new proposal puts the ball back in promoters’ court,” said an analyst with a Mumbai-based foreign brokerage, who didn’t want to be identified. He viewed the development as “net-net positive” for the firm.
The BSE announcement was made after markets closed for trading on Friday. R-Infra shares closed 0.97% higher at Rs1,120.70 each on BSE, while the bellwether Sensex ended at 13,887.15 points, 1.10% higher.
R-Infra has already undertaken two rounds of buy-backs between March 2008 and April 2009, buying 11.26 million shares for an aggregate amount of Rs920 crore.
These shares were extinguished, effectively raising the promoters’ holding from 34.68% at the end of December 2007 to 43.79% in March 2009. The promoters’ holding is set to rise further if the latest preferential allotments are approved by the board.