Reliance Industries Ltd (RIL) will open its ₹53,215 crore rights issue — India’s biggest yet — on May 22, aiming to bolster the re-positioning of the once energy- focussed giant as a consumer/technology company, with Jio and Retail Platforms.
Shareholders can pay 25 per cent on application, and balance in one or more calls. The rights issue is priced at ₹1,257 per share.
The “global pandemic is reshaping the way the world lives and works,” Reliance said in an analyst presentation. There will be visible acceleration in digital services and the heightened need for robust supply chain-led new commerce model.
As new strategic investors participate in growth engines, the rights issue will reward existing shareholders enabling them to participate in consumer/technology business value creation, according to the company.
Strategic investments
RIL has seen significant re-rating of stock since the launch of Jio in September 2016, with growth in consumer business visibility. This re-rating is expected to continue with the increasing share of consumer businesses in earnings.
Asset-light technology companies have created more value over the last decade than the aggregate market capital of energy companies in the S&P. Strategic investments in digital services and organised retail platforms underpin RIL’s participation in next leg of value creation in India, the company said.
On April 22, Reliance announced that Facebook has agreed to invest ₹43,574 crore for a 9.99 per cent stake in Jio Platforms Ltd. This is the largest minority investment by any technology company globally. It is also the largest foreign direct investment for a minority investment in India. Facebook will get one seat on the 15-member board of Jio Platforms. The transaction is likely to be closed by end of this quarter.
With the Facebook deal, Reliance said it has achieved 50 per cent of the targeted value unlocking. “Jio Platforms has also received interest from other global investors for similar sized additional stake,” the company said.
Separate company
In comparison, the company’s flagship energy and petrochemicals business is floundering under the weight of demand destruction caused by the outbreak of the coronavirus pandemic.
Oil prices dropped dramatically by 73 per cent during the January-March quarter, inflicting a non-cash inventory holding loss of ₹4,267 crore (net of taxes) across the oil-to-chemicals business during the fourth quarter and ₹4,444 crore for FY20.
Crude price fall has been accompanied by demand destruction caused by Covid-19, impacting transportation fuel cracks.
Reliance is spinning off this business into a separate company in which Saudi Aramco, the world’s biggest oil producer, has agreed to take a 20 per cent stake for as much as ₹1.03 lakh crore, or roughly $15 billion, a valuation which will likely come under strain post the corinavirus pandemic.