Chairman of Reliance Industries Mukesh Ambani shocked his investors by announcing that by year-end 2020 RIL will turn debt-free and entire bank loans of Rs.1,60,000 crore will be repaid.
He declared this during an Annual General Body Meeting of Shareholders in the first week of August 2019 to the Uttar dismay of financial experts and rating agencies who have cautioned the RIL of its mounting debts in 2011 and advised it against opting further loans in view of its net profit amounting to around Rs 25,000 to Rs 30,000 crore after the depreciation. In this scenario, they wondered as to how the RIL would repay its debt of Rs 1,60,000 crore unless its 30% shares are sold at Rs1600.
RIL started negotiations with big investors from December 2019 onwards. A specialist was also appointed for this purpose for high remuneration. It’s a well-known fact that the market cap of RIL is above Rs 10 lakh crore at December share price value. It has been in the top three positions in the Bombay Stock Exchange for the last five years uninterruptedly so that one of the top three companies of RIL reflects the status of the corporate sector in India. It is considered in the Indian corporate sector that the success of RIL is the success of Indian Corporate Sectors and the failure is also considered Vice Versa.
COVID 19 Effects
When COVID 19 started expanding its wings across the world RIL is the only company which understood the future financial impact of Carona on the big companies. We all know when a big cyclone enters the earth only Big trees are destroyed first, small trees somehow would survive. So RIL thought that COVID 19 may destroy the financial fabric of the world and especially Big companies. So they changed the gear and acceleration brought in selling strategy of the Shares of the company.
But there were a lot of hurdles in the process of selling the preferential shares like selling them abroad as they prefer trading of shares in Newyork or London stock exchange listing of the shares. Otherwise monitoring share price or selling stakes in difficult times becomes a huge burden. They may incur pecuniary losses also due to delay, time difference (day time in India is night time for America) brokerages etc.
Similarly for Preferential shares issue also (issuing additional shares to existing shareholders) difficult as per the procedure. Company has to intimate every individual shareholder, the number of preferential shares eligible and getting their confirmation in writing and then issue the additional shares takes two to three months.
On top of it, no other big company shall do the same exercise in the same period, which gives the wrong signals to worldwide investors. Similarly, no adverse financial news to be published on the company or its family members during this period. As per RBI norms, no foreign companies or individuals can hold above 10% share in a single company in India.
So everything was understood by RIL inch by inch and implementation was planned meticulously.
The Union Minister for Finance Nirmala Seetharaman declared that Indian companies can list their shares in Foreign sources. So foreign investment started flowing in RIL. The company went to the extent of 15% discount on the share price on the cut off date. Generally, big companies issue shares at good premium of 20% to 25% of the market rate. As RIL understand the financial situation worldwide preferred discount to sell the stake by June first week, that means before financial results for 2019-20 are declared.
Loans of Rs.160,500 crore loan raised to establish Jio phones and Reliance Retail during the last four years.
Reliance Mart with an investment of around Rs.30,000 crore was planned for May 2020 for Ecommerce business tieing up with thousands of small shop keepers to give a big fight to Amazon, Flipkart, Big Basket, Dmart etc.
But all at a sudden company came to know that Tata group is entering into this ring with Tata Cliq. It is a silent thunderbolt for all E-Commerce business companies in India.
Selling to foreign investors
So first of first Facebook was given 9.99% of shares in Jio Platform Ltd for Rs.43,574 crores, which is a part of RIL total business. It gave a valuation of Reliance Jio Platform Ltd a valuation of more than Rs.440,000 crore.
It was followed by allocation of shares to big foreign investors like Silver Lake, Vista Equity Partners, General Atlantic, KKR group and UAE company Mubadala. A total of Rs.92,202.15 crore was raised by selling around 17% stake in Jio Platform Ltd. Maybe another 3% of shares of Jio Platform Ltd may be sold soon.
The government permitted for the first time issue of notices and information on preferential shares DIGITALLY. So advertising on TV and Social media is sufficient. Transfer right also permitted. That means you Mr X is not willing to purchase preferential shares he can transfer these preferential shares to someone else. So rules are diluted to protect the biggest company.
Preferential shares publicity were declared on TV and websites & Social Media. For every 15 shares holding one additional share was allocated with 15% discount. Payment of money for preferential shares also permitted in instalments basis spreading till next May 2021. So rules came down to user-friendly level. Now Preferential shares were 1.59 times subscribed. That means Rs.84,100 crore amount was applied.
So Jio platform Ltd to be separated from RIL within the next 12 months and to be listed in New York stock exchange. RIL interest burden may come down drastically to around Rs.25,000 crore only by June 30, 2020.
Thanks to Govt of India for making RIL a financially good company. Very good planning by RIL and execution also.
Now SBI filed a case in NCLT on Anil Ambani for the huge dues in Reliance Communication Ltd. Ajay Piramal, the close relative of Mukesh Ambani is selling 20% stake in Piramal Pharma for Rs.3500 crore.
As Shakespeare said ” All is Well that ends Well”