Reliance Industries Ltd. gave a massive news by announcing its plans of raising Rs 53,215 crores through rights issue. The company will be selling its shares to existing shareholders and it is the country’s biggest fundraising campaign. The aim behind this move is to go net debt free by end of this ongoing financial year as planned by chairman Mukesh Ambani. The company currently stands at Rs 1.53 trillion net debt as of December 2019.
This share sale is a first of its kind for RIL in almost three decades. The shareholders of the company will be offered one new share for every 15 priced at Rs. 1257 apiece. It is placed at a discount of 14.3 percent to closing price on April 30 of Rs. 1467.05. This will lead to an equity dilution of 6% on the expanded equity base. The shareholders willing to take up rights issue are expected to pay 25% on application and the rest amount in one or two installments.
This update came right after the news of sharp drop in profits of Q1 which is not surprising considering the current situation of lockdown in world because of Coronavirus. There was a reduction in profit by 39% this year compared to last year where profit this year is Rs 6348 crore while at this time in 2019, the company stood at a profit of Rs 10,362 crore.
The pandemic has affected the business in multiple terms like production, Supply and Demand and unavailability of workforce. To add to this, there has been sharp drop in oil prices. Mukesh Ambani holds 50% share in the company and it is estimated that he will have to put in around Rs 26000 crore to receive his entitlement in rights issue. The other major stakeholders too have pledged to take up full extent of their share and also subscribe to all the unsold shares as well. There are reports that company will hire at least 7 investment banks by next week to track these shares. The deal with Facebook and the fundraising campaign is expected to bring the debt of RIL to Rs. 43,600 crores. With this pace, Reliance has good chances of fulfilling its aim and coming out of debt.