Is Mukesh Ambani’s plan to buy 120 million war-rants in Reliance Industries an indication that a public issue is round the corner? Several investors believe that Ambani is buying warrants to maintain his 50% share in the company, which could fall if Reliance sells shares to the public.
Reliance Industries has not done a domestic equity issue since 1995. The fact that there is talk of one now tells us a lot about the changing nature of corporate balance sheets. Indian companies have been funding their capital expenditure with their own money. This was possible while the investment plans were modest and companies were sitting on cash piles.
The situation has now changed. Investment plans are bigger. Cash in balance sheets is being used faster than it can be replenished. So, money will have to be raised from the public markets. The big challenge for business families will be how to raise capital without giving up corporate control.