Reliance Retail plans to buy out minority shareholders

Mukesh Ambani-controlled Reliance Industries Ltd (RIL) is looking to buy out the minority shareholders of Reliance Retail Ltd for a total sum of up to ₹1,071.27 crore and make its step-down retail unit into a fully promoter-owned company in what can be a termed as a precursor to a potential demerger and a separate listing of the retail business.

Reliance Retail said on Friday that its board approved a proposal to reduce the equity share capital to the extent held by shareholders other than its promoter and holding company, Reliance Retail Ventures Ltd (RRVL). According to the plan, post the share buyback, the holdings of the minority shareholders will be cancelled and extinguished.

Minority shareholders hold only 0.09% or 7.87 million shares of Reliance Retail against the total outstanding equity shares of 8.99 billion.

The company is offering ₹1,362 per share — determined on the basis of valuation obtained from two reputed independent registered valuers — towards the capital reduction, it said.

“The capital reduction shall be pursuant to Section 66 of the Companies Act, 2013 and shall be subject to approval by members of the company by way of special resolution and obtaining the sanction and confirmation from the National Company Law Tribunal, Mumbai bench. The company will be sending notices to its shareholders for this purpose,” it said in a filing to the stock exchanges.

RRVL holds 8.99 billion shares representing 99.91% of the issued, subscribed and paid-up equity share capital of the company. While Reliance Retail has no plans to list its equity shares on the stock exchanges, it was observed that the number of equity shares traded is increasing every month.

In June, a total of 245,229 equity shares were traded in the grey market, up from 43,740 in January 2023.

Such trading, without fair price discovery, isn’t in the interest of the investors in the securities market and is detrimental to their interests, the company believes.

Experts said that post-compulsory buyout of minority shareholders and reducing the share capital held by shareholders other than promoters, the holding company, RRVL, wants full control over this unit. Valuations though, may be questioned by minority shareholders.

Reliance Retail said while there is no recognized market available to the shareholders to buy and sell their holdings, the fair value determined by independent registered valuers Ernst & Young Merchant Banking Services LLP is ₹884.03 per share and ₹849.08 per share by BDO Valuation Advisory LLP.

Further, Ernst & Young Merchant Banking Services LLP, in a report, said per share equity value derived from the Sum of Parts valuation of RIL done by research analysts is ₹794.

Against this, it has been observed that the equity shares of the company are being traded privately at random prices quoted by some brokers/intermediaries on their websites without any fair price discovery.

Reliance Retail is the retail initiative of RIL, with different store formats across grocery, consumer electronics, fashion & lifestyle and pharma. Reliance Retail reported a revenue of ₹2.6 trillion for the financial year ended 31 March 2023. It operates about 18,040 stores across more than 7,000 towns with a retail area of over 65.6 million sq ft.

This will value Reliance Retail between ₹7.63 trillion to ₹7.95 trillion.