Reliance Industries Ltd (RIL) has raised $764 million (Rs3,476 crore) by selling treasury shares. This is the third tranche in the sale of treasury shares and the company has raised a little over $2 billion in the past four months. Evidently, these funds are being raised by the company to prepare for its bid for a controlling stake in petrochemical firm LyondellBasell Industries AF.
This is a cause for concern, some analysts say, since it indicates that the company is keenly pursuing the acquisition. What’s more, according to recent news reports by The Wall Street Journal, RIL raised its bid from the original $12 billion to $13.5 billion, but even this was rejected by the LyondellBasell board. Putting two and two together, one would assume that RIL would raise its bid price again. After all, if the rejected $13.5 billion bid was its final offer, it wouldn’t bother raising more cash through a share sale.
In any case, it must be noted that only a few sparse details of the bid are available. It’s still not clear if RIL is bidding for a 100% stake or only a majority stake. Needless to say, it doesn’t make much sense to evaluate the bid until these and more details about LyondellBasell are available. Minority investors, however, may tend to get uncomfortable if there’s news of a further hike in the bid price. On the other hand, with its regular share sales, RIL has demonstrated that raising funds for the transaction should not be an issue. It still has treasury stock worth about $7 billion and a cash balance of over $5 billion. Besides, according to a recent report by Goldman Sachs, RIL is expected to generate $27 billion in free cash flow in the next four fiscal years, after accounting for its committed capital expenditure for the oil and gas business.
Meanwhile, the outlook for the company’s refining business has slowly started improving after the trough in the December quarter. Gross refining margins have improved in the last two weeks, along with the rise in crude prices. According to an analyst with a domestic institutional brokerage, this should be seen as part of a yearly trend when refining margins reach bottom in the December quarter and slowly pick up from January. In other words, the improvement in refining margins is nothing much to get excited about.