Reliance on a cash raising spree

Reliance Industries (RIL), which raised Rs 2,675 crore (Rs 26.75 billion) through the sale of treasury shares on Monday, is looking to generate a similar amount over the next few weeks by selling more stock to institutional investors.

Sources told Business Standard that shares were proposed to be offered at a discount of 2-4 per cent as part of a strategy to beef up its cash reserve. Bankers representing RIL had initiated talks with fund houses for completing the transaction soon, said two investment bankers familiar with the development.

"Probably, the company would offer over 20 million shares to the institutional investors. The fund would be used for its immediate requirement in exploration and production (E&P), debt repayments and acquisition of bankrupt chemical giant LyondellBasell. Since acquisition will take at least six months time, the preference would be for immediate requirements," said a banker with a foreign company.

A RIL spokesperson declined to comment on the development.

At the end of September, RIL had a debt of Rs 71,349 crore (Rs 713.49 billion) on its books due to its exposure in capital-intensive businesses such as exploration and production, and petroleum refining. As the share price is at the desired level, the company is now looking at equity-linked fund raising to repay part of debt, said a Mumbai-based analyst.

On the E&P front, the company is on a spending spree to ramp up gas production from the Krishna-Godavari (KG) basin. Further, it is investing in exploration blocks in India, as well as abroad.

RIL had cash and cash equivalents of Rs 19,421 crore (Rs 194.21 billion) at the end of September. These are in fixed deposits, certificate of deposits with banks and government securities and bonds. Considering the pending treasury stock of 10.15 per cent, or 333.85 million shares after Monday's transaction, RIL could raise around Rs 36,350 crore (Rs 363.50 billion) at the today's share price of Rs 1,088.80. RIL share price rose 1.8 per cent on BSE when Sensitive Index was up 0.08 per cent on Wednesday.

The petroleum giant on Monday sold 25.85 million treasury shares for Rs 2,675 crore (Rs 26.75 billion), the second such transaction in less than four months. At an average price of Rs 1,035 apiece, a 5 per cent discount to the stock's December 31 closing price, RIL had sold off the shares.

In September, it had raised around Rs 3,188 crore (Rs 31.88 billion) by diluting treasury stock held by Petroleum Trust to a clutch of investors. It sold 15 million shares at an average price of Rs 2,125, a 2.7 per cent discount to previous day's closing price of Rs 2,183.50.

After the first transaction in September, the company had issued the bonus shares that resulted in share price reduction at the time of the two transactions fetched the company Rs 5,863 crore (Rs 58.63 billion).

Citigroup and Bank of America-Merrill Lynch were arrangers for the share sale, said banking sources.

The share market had reacted negatively to the treasury stock sale after both the transactions.