NEW DELHI (Financial Times) -- Reliance Industries announced India's biggest ever rights issue in a $7bn fundraising drive that is designed to cut down its enormous debt pile as demand for its core oil and chemical products collapses.
Owned by Mukesh Ambani, India's richest man, Reliance has in recent years expanded beyond its refining operations into new business areas including retail and its telecom operator Jio. Reliance last week announced that Facebook would invest $5.7bn for a 10 percent stake in Jio in a push into digital services like e-commerce and payments.
But the conglomerate has concerned analysts by taking on considerable debt in the process and has vowed to cut its net debt of over $20bn to zero within a year.
Reliance said that it would raise Rs531bn ($7bn) through the rights issue, India's largest ever, priced at Rs1,275 a share, a 13 percent discount to Thursday's closing price. Combined with the proceeds from Facebook's investment and a deal with BP announced last year, the conglomerate said it expects to raise more than Rs1tn this quarter.
Alok Agarwal, Reliance's chief financial officer, said the rights issue was the best way to "demonstrate the deep conviction in Reliance's future" in light of the fast growth of its new consumer businesses.
The move came after its refinery and petrochemicals business, which still produces the bulk of the conglomerate's revenues, were dealt a severe blow by the drop in global oil prices and "unprecedented demand destruction" due to coronavirus lockdowns in India and elsewhere.
Reliance said that as a result its net profit for the quarter ended March fell 37 percent from the same period a year earlier to Rs65bn ($870m), as it wrote off more than $500m worth of inventory due to the dramatic price drop.
Employees in Reliance's oil and chemicals divisions earning more than Rs1.5m ($20,000) will take temporary pay cuts of at least 10 percent, with those cuts rising to 50 percent for top executives. Mr Ambani, who has a net worth of more than $50bn, will forgo his salary.
But a deal announced last year for Saudi Aramco to take a 20 percent stake in its oil-and-chemicals arm - another part of its fundraising efforts - remains incomplete. Some analysts have questioned the timeline due to the recent deterioration in oil markets. Reliance said it was on track.
It said that Jio, which now has almost 400m subscribers, fared better through India's lockdown with a sharp increase in data traffic. In announcing the Facebook investment last week, Reliance said it will pair its new e-commerce venture aimed at groceries with Facebook's WhatsApp messaging service, giving it potentially enormous reach.