This is Reliance Rights Issue in Three Decades
As reports emerged that General Atlantic will be making an investment of $800-$900 million in Reliance Jio Platforms, Reliance Industries has announced 14th May as the record date for Rs.53,125 crores rights issue. Jio Platforms owns the country’s largest telecom operator Reliance Jio Infocomm Limited and operates digital businesses like Jio Mart, Jio Saavn and Jio Cinema and payments platform Jio Pay. The rights issue announcement comes as a part of RIL’s plans to become debt-free company by March 2021. The conglomerate’s debt stood at Rs. 1.53 trillion as of December 2019. The proposal will be the largest rights issue offering by an Indian entity, underscoring Chairman Mukesh Ambani’s confidence despite the Covid19 global recession scenario that has slumped valuations.
Reliance – What is a Rights Issue
A company, if and when it needs capital/wants to expand/to clear the debt, it can issue fresh shares by Initial Public Offer (IPO) or a Follow on Public Offer (FPO) or a rights issue. While IPO is for a company which is not yet listed, FPO means the issuance of a new set of shares by a listed entity for the whole of the market to buy. Rights issue includes an issue of a new batch of shares but exclusively to existing shareholders.
The list shareholders who will be eligible to buy these shares will be announced on a date called ‘Record Date’. A rights issue is usually done on a pro-rata basis. A rights issue is done as per the provisions of Section 62 of the Companies Act, 2013. Chapter III of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 deals with rights issue by listed entities.
How to get shares in Reliance Rights Issue
Reliance is offering one rights issue share for every fifteen shares one shareholder owns. It means if a shareholder owns 75 shares of RIL, they can buy 5 shares in this rights issue. And also, RIL is offering at a discounted rate to that of the market rate when it announced the rights issue. The price of each rights issue share is Rs.1,257 while the price of each share when the company announced rights issue was Rs.1,466. To be eligible for rights entitlement in the rights issue, shareholders need to hold at least 15 equity shares on the record date i.e., 14 May 2020. The Company has obtained International Securities Identification Number (ISIN): INE002A20018.
Terms of payment include 25% on application and balance in one or more calls as may be decided by the Board / Committee of the Board from time to time. Therefore, the initial fundraising will be only Rs 13,250 crore. The 422.6 million fresh shares to be issued by RIL will be partly-paid.
The investments in Reliance Jio.
A debt of more than Rs.1 trillion is hard to clear within a year, that too with the advent of Covid-19 pandemic. However, the spree on investments in Reliance Jio is a seemingly hopeful scenario. While the global oil prices are trading at all-time low levels, Reliance stock recovered from its low of INR 884.05 (on 24 March) to a high of INR 1576 (on 11 May).
At first, Facebook announced that it will be investing in Jio Platforms. According to reports by ET, the companies are aiming to create a super-app like that of WeChat of China, using Jio’s subscriber base and Whatsapp’s massive usage.
Reliance Retail, Jio Platforms and Whatsapp (a Facebook subsidiary) have also agreed to cross-leverage e-commerce platform JioMart and WhatsApp, to grow both businesses. Experts opine that this deal is going to result in Jio’s favourable treatment of Facebook while officials from Jio deny such a possibility. The two giants differ on issues related to data storage and privacy issues. The Facebook investment is the single largest FDI investment into the country.
After Facebook’s all-cash investment of Rs.43,574 crore, the world’s largest tech-focused private equity fund Vista Equity Partners announced that they will invest Rs11,367 crore in Jio Platforms for a 2.32% stake in the company. This came after Silver Lake announced, on 4th May, to invest Rs. 5,655.55 crore for a 1.12% stake in the company. According to a more recent report, US-based General Atlantic is in talks with Reliance Industries to invest $850 – $950 million. The discussions with General Atlantic are still in preliminary stages said a Livemint report.
Rights Issue at times of uncertain Aramco deal:
On May 08, 2020, Bloomberg reported of Saudi Arabia’s $320 billion sovereign wealth fund exploring a potential investment in Reliance Industries Ltd.’s digital subsidiary. Reliance had last August announced stake sale worth $15 billion stake in its oil-and-chemicals business to state-owned Saudi Arabian Oil Company. The deal was supposed to close by March 31, 2020. However, it is now expected to close in this financial year.
India’s telecom sector is yet to cover a large population with 4G services. The decreasing number of players, Jio’s performance and brand value are some of the factors which seem to have attracted these investments. Apart from these, the revenue lines of Jio Platforms flow from the same subscriber base. The repeated monetisation of the same subscriber base is an interesting thing about a company for the investors.