Mukesh Ambani’s RIL opened a INR 53,125 crore rights issue following an INR 60,000 crore investments from global investors such as Facebook.
By Abhishek Sudke, VIT Today Economics and Finance
Mukesh Ambani, Chairman and Managing Director of Reliance Industries Limited at the Annual General Meeting of RIL. Image: Fortune India Archives
Mumbai based Reliance Industries Limited (RIL) has now opened a rights issue with the aim of boosting the Jio division of the company. Rights issue is when shares of the company are offered at a special price to the company’s existing shareholders in proportion to their holding of old shares. With Jio spearheading the technology vertical of RIL, it is being touted to lead the financial ambitions of Mr. Mukesh Ambani in the near future. As the future of oil looks bleak in the near future, RIL is looking at expanding Jio in the massive Indian consumption market to include more revenue generating initiatives such as e-commerce, through JioMart, social media penetration through Jio-Facebook, and expanding the Jio network to penetrate the entire nation.
These massive ambitions require an immense amount of financial resources to be made available to the RIL. These ambitions are passing through a rocky sea at the moment for two reasons. RIL’s books currently house a staggering $21 billion debt, and clearing the same would be an important factor in achieving their Alexandrian ambitions. With the changing nature of the conglomerate, from oil to telecom, RIL would benefit from investments that bring them more than just financial capital.
Having realised the same, RIL has been able to garner a massive INR 60,000 crore in the past four weeks from the wallets of prominent investors such as the General Atlantic, Vista Equity Partners, Silverlake, and Facebook. Each of their investments include benefits far larger than just providing financial backing to the RIL. General Atlantic has previously invested in global brands such as Uber and Airbnb. Facebook’s investment comes with their expertise of utilizing the advertising aspect of their application for massive revenue generation, which would help Jio Platforms to a large extent.
In addition to this, RIL also set the ball rolling for their proposed Rs 53,125 crore rights issue, which is a first in three decades. The subscription to the rights issue will be opened on May 20 and close on June 3. During this period RIL shall offer a single share for every 15 shares that an existing shareholder holds at a price of Rs 1,257.
The installments for the rights issue subscription needs to be paid in three installments - 25 per cent is to be paid at the time of subscription, 25% in May 2021, and the balance of 50% in November 2021 said the company in its regulatory filing.
“The rights issue will help RIL reduce net debt further by $7.5 billion,” Swiss investment bank Credit Suisse noted in an April 27 report. The rights issue, the investments into Jio Platforms, opening of two new Infrastructure Investment Funds (InvITs) and other important deals such as the Aramco-RIL deal play an important part in ensuring the zero debt ambition of Mr Mukesh Ambani. Ambani’s zero debt ambition is much more expansion oriented rather than just symbolic value of being a zero debt company in India.
Experts think that the plan to go debt-free will give an edge to Ambani’s Reliance in a post coronavirus world. This stems from the dynamic change that RIL is going through from being an oil conglomerate to a telecom one, and the increasing focus it devouts to light technology such as E-Commerce and Social Media.
“A debt-free company will enjoy more market trust in a post-coronavirus world and will be in a position to take new risks,” said Kazim Rizvi, founding director of a policy think tank The Dialogue.
As the data suggests, in the last 10 years, the three global technology giants – Amazon, Apple and Microsoft have each hit the trillion dollar market caps while all S&P energy companies put together are not worth more than $582 billion. This brings into question the validity of holding legacy businesses such as Oil and Heavy manufacturing over the rising light technology based companies. RIL’s ambitions to tap into the global technological market through Jio is a risky endeavour, and the success of the same is hinged onto uncontrollable factors such as the increasing engulfment of the world by Coronavirus. Will Jio and Reliance go on to become the global technological players by leaving behind Dhirubhai Ambani’s oil legacy, or will this greater ambition land a massive blow on Ambani’s Antilia?
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