Ambani: Cash course

Mumbai, Dec. 2: Reliance Energy Ltd will raise Rs 8,000 crore through a preferential issue to Reliance Anil Dhirubai Ambani Group (R-ADAG) and a clutch of domestic institutions.

The decision was taken at a meeting of the company’s board of directors here today. The preferential offer, subject to necessary approvals from the shareholders, will be made at a price of Rs 1,812 per share, representing a premium of 5 per cent to the current market price.

Apart from R-ADAG, the Life Insurance Corporation of India, the General Insurance Corporation of India, New India Assurance, Oriental Insurance, National Insurance and United India Insurance will also be “provided an opportunity to participate in the proposed offering on the same terms and conditions”, the company said in a statement. These institutions collectively hold around 18 per cent of equity in the company.

The capital infusion will be used to fund the company’s various infrastructure projects in power generation, transmission and distribution.

The funds will also be used for the company’s highways, bridges, metro rail and real estate projects.

Reliance Energy said the new equity would substantially enhance its net worth and borrowing capabilities.

Chairman Anil Ambani said, “We have a great sense of excitement at the unprecedented opportunities unfolding before Reliance Energy.

“We believe our infusion of new equity capital at a premium of 5 per cent to the current market price provides a strong signal to the capital markets and international and domestic investors about our confidence in the company’s growth prospects,” he said.

The capital infusion will lead to a 100 per cent increase in net worth from Rs 10,542 crore to Rs 20,000 crore by March 2009.

The offer will also strengthen its AAA credit rating profile. Its borrowing ability will rise to Rs 20,000 crore from Rs 10,000 crore, even at a conservative debt equity level of 1:1.

There will also be an increase in the book value per share to Rs 720 per share from Rs 447 per share.

The total promoter holding in Reliance Energy for the period ended September 30 stood at 36.59 per cent.

With the proposed infusion, Reliance Energy will rank among the 20 most valuable private companies based on financial parameters such as assets, sales, net worth, profit and market value.

The Reliance Energy share has surged this year, reflecting the market’s confidence in its business model and Ambani’s plan to form a separate company for power generation.

The scrip on Friday closed at Rs 1,738.10 on the BSE, a gain of 4.47 per cent or Rs 74.40 over the last close.

Reliance Power, in which Reliance Energy holds 50 per cent, last week bagged the Krishnapatnam mega power project in Andhra Pradesh.