RIL's Jumbo Rs 53,125 Crore Rights Issue Opens Today
RILs right issue price offers an attractive opportunity to ride on multiple drivers.
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RIL have raised Rs 670Bn through the sale of stake in the Jio platform to multiple global investors. To further strengthen B/S and capitalize on global opportunities amidst the Covid-19 pandemic, RIL plans to raise Rs 531Bn through the right issue at Rs1,257/share. Though our price target would come down to Rs1,580 (earlier Rs1,601), stock offers an attractive opportunity to play on highly scalable with B2C oriented businesses. Reiterate BUY
RIL fund raising plans to gather steam: RIL has lined up an aggressive fund raising plan to deleverage its balance sheet. Towards that, the company will raise 1) Rs531bn by way of rights issue at a price of Rs1,257 2) Rs670bn by way of 14.74% stake sale in Jio Platform Ltd (JPL) to Facebook and three Private Equity (PE) at an average EV of Rs4.8trn (PLe Rs4.7trn) and 3) Rs70bn from sale of 49% stake in RIL-BP fuel retailing JV. We also expect further global suitors to buy JPL stakes for playing ongoing digitalization drive in India.
Right issue deal among the largest: RILs right issue deal of Rs531bn is the largest in India. It is in the ratio of 1 share for 15 shares which will open on May 20th and close on June 3rd 2020. An amount of 25% of right issue price is payable on application; another 25% in May 2021 and the balance 50% is payable in November 2021. The dispersed payment terms look attractive as the initial capital commitment is not high.
Right entitlement renunciation price to range Rs153-210: In case the right issue holder decides to sell the rights, we calculate breakeven of theoretical price for renunciation of right entitlement at ~Rs210 (details in page 2). However, given that buyer is taking the liability to pay Rs1,096 after 18 months and risk to price change, we believe price to settle between Rs153 (CMP-right issue price) and Rs175.
Concerns on deleveraging abate: RILs fund raising plans will help address concerns on deleveraging of balance sheet, especially concerns associated with potential delays in completion of Aramco transaction. We believe RIL is very well placed to ride the current global turbulence especially when refining and petrochemicals business are likely to face headwinds.