Target zero net debt? RIL board to consider rights on April 30

Reliance Industries (RIL) said on Monday that its board would consider a proposal to issue shares to existing shareholders on a rights basis, at its board meeting on Thursday.

Analysts see the move as an attempt to help the company achieve its goal of zero net debt, if further plans to sell stakes are delayed.

In a statement to the ESB, RIL said the company’s board of directors will meet on Thursday to review and approve its March 2020 quarter and full year 2020 results, recommend a stock dividend and consider a proposal to issue shares to existing shareholders on a rights basis, to the extent permitted by applicable law, subject to regulatory/statutory approvals, which may be required.

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“We weren’t expecting a rights issue,” one analyst said. However, he added, “In the current global environment and oil markets, the rights issue should be considered a ‘plan B’ if there is a delay in selling the stake to Aramco. It’s the easiest way to achieve the goal of zero net debt.

The analyst expects a 5% dilution through rights. In other words, each shareholder will have the right to request five new shares for every 100 shares held. This will help RIL raise Rs 40,802 crore, assuming a 10% discount to Monday’s closing price.

In August 2019, the group’s chairman and chief executive, Mukesh Ambani, told shareholders that RIL would be a zero net debt company by March 2021.

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RIL’s debt stood at 3.06 trillion rupees in December 2019, compared to 2.87 trillion rupees in March 2019. Net debt, as of December 2019, was 1.53 trillion rupees. According to a Credit Suisse note, RIL’s net debt-to-equity ratio as of March 2020 is expected to be 0.52x.

Last week, RIL announced that Facebook would invest Rs 43,574 crore in Jio Platforms for a 9.99% stake.

With a net debt of 1.53 trillion rupees, RIL still needs an additional 1.1 trillion rupees to achieve its zero net debt target. Thus, the 5% stock dilution may not be entirely helpful, and RIL may need to opt for a higher dilution.

Assuming a 10% discount, RIL will be able to obtain an additional Rs 81,600 crore from a rights issue, at the current market price, if it dilute 10% of its equity. He has yet to share details of the size of the issue.

RIL’s capital expenditure in the December quarter at Rs 14,015 crore accounted for three-quarters of its cash profit which stood at Rs 18,511 crore, giving an indication of the excess cash it has available for the debt reduction.

As part of the debt reduction measure, RIL plans to sell 20% of its petroleum-chemicals (O2C) division to Saudi Aramco for $15 billion. With oil prices plummeting, analysts have raised concerns about the timing of the deal.

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Other plans include its Rs 25,215 crore deal with Brookfield Group to sell 51% of its stake in its telecommunications tower assets, through an investment infrastructure trust (InvIT ). RIL also plans to bring in a strategic investor in its InvIT fiber assets.

In December 2019, RIL and BP agreed to form a joint venture, in which BP will acquire a 49% stake in RIL’s retail fuel business for Rs 7,000 crore.

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