Reliance Communications Dials The Right Number: $1 Billion Transformational Deal
Reliance Communications Dials The Right Number: $1 Billion Transformational Deal
Reliance Communications Ltd has raised 4,800 crore or $804 million through the sale of shares recently. This QIP powered a $1 billion transformational deal for this telecom major. Reliance Communications has now garnered the single largest equity issue since the NDA government came to power.
RCom is the third largest mobile phone operator in the country. The proceeds of this QIP will help customers to cut their debt. The share sake of the company will possibly be followed by a raft of equity sales by Indian firms in coming months. Reliance Communications headed by Anil Ambani currently has a net debt of 410.78 billion or $6.7 billion as per the end of March.
This is nearly 5 times more than its operating profit. This communications and telecom major is one of the most leveraged among existing Indian carriers. Chief Investment Officer at IDBI Federal Life Insurance A. Srivastava has indicated that corporate Indian needs to deleverage balance sheets for growth. Share sale momentum is set to continue.
Economic downturns and low corporate earnings in the face of political uncertainties had been the reason why equity deals were on the hold last year. But the story this year is different. With the first outright win in the Indian elections in 3 decades, the NDA government starts with an advantage when it comes to revving up the growth engine. That advantage is a clear mandate. With obstacles such as the Indian monsoon posing a challenge, the right attitude and proactive steps can help to overcome the hurdles to some degree.
Reliance Communications has got a total bid of about 120 billion. The efforts have been made to retain 60 billion worth of bids. Of this, 48 billion or $804.02 million was through shares to institutional investors. Shares worth 13 billion rupees were purchased by the founders of Reliance Communications. The company has also launched a share sale worth $500 million.
The company also raised 6,100 crore or $1 billion in a transformational overnight deal involving QIP of around 4,800 crore. This is the largest in India excluding the banks. The promoters also decided to invest 1,300 crore through preferential allotments of warrants alongside the QIP offering with 5% premium over QIP offering taking the total equity proceeds to a grand tune of 6,100 crore.
The entire proceeds of the deal will be used to pay down high cost rupee debt and deleverage balance sheet and interest savings of 800 crore. The lead managers to the Rcomm QIP were CLSA and JP Morgan whereas Edelweiss and Axis Capital were the co-managers. Rcomm shares on the BSE closed at Rs,151 in a volatile market. It is hoped the deal will pave a brighter future for the telecom major. With enough resources at its command, it will be able to pull back from the debt and gain positive momentum in the months to come.
