Reliance may increase stake in BSES to 56.5%

BSES board has approved a Rs 1,400 crore preferential allotment issue to the Reliance group.

The issue, at Rs 640 per share group, will help the group increase its stake in BSES to 56.5 per cent.

The company is planning to issue two types of instruments: conventional equity shares with voting rights and non-conventional equity shares with differential voting rights.

The board also approved the issuance of another Rs 1,000 crore through equity shares; and or equity shares with differential voting rights; and or an international convertible bond offering.

The Reliance group is willing to subscribe to the additional Rs 1,000 crore to the extent permitted under the Securities and Exchange Board of India's takeover code.

The shares with non-voting rights will be entitled to a 5 per cent higher dividend than those with voting rights.

LIC and GIC will pump in another Rs 600 crore through the preferential offer.

If the issue of non-voting shares goes through, the Reliance group's stake in BSES will go up to 56.5 per cent from 49.5. Otherwise, it will be 53.4 per cent.

"The proposed issue of shares with differential voting rights will be subject to statutory clearance. The Reliance group is a long-term investor in BSES and, therefore, is comfortable with a stake of 53.5 per cent. It will benefit from the higher dividend," said BSES Chairman and Managing Director Anil Ambani.

Ambani pointed out that the proposed investment represented only 8 per cent of Reliance's cash flow of over Rs 30,000 crore in the next three years.

Further it will represent less than 5 per cent of Reliance's future gas sales contracts of Rs 50,000 crore over the next 20 years to the proposed gas project in Uttar Pradesh. The institutional shareholders are pumping in additional money to retain their original shareholding of around 21 per cent.

"The guidelines for creeping acquisition coupled with those for a preferential issue mean that the Reliance group cannot buy more than 21.8 million shares till the end of 2005-06. This is the reason for going in for an issue of shares with differential voting rights," a senior Reliance group executive said.

Under the present takeover code, the promoter can hike his stake in a company by 5 per cent every year through creeping acquisition without having to make an open offer. The Reliance group has already bought 3 per cent in BSES this year.

On the other hand, the guidelines for preferential allotment stipulate that the shares have to be purchased at the price computed under the Sebi formula within 18 months. This means that the Reliance group can only buy 21.8 million shares up to 2005-06.

As result of the infusion of Rs 3,000 crore equity in BSES, the net worth of the company will swell to around Rs 6,500 crore making it the company with the third largest net worth in the country after Reliance Industries and ICICI Bank.

BSES has chalked out an investment plan of Rs 20,000 crore for the next five years. It is planning to invest Rs 10,000 crore in its generation business, Rs 4,000 crore in transmission and Rs 6,000 crore in distribution.

The company has also decided to invest Rs 10,000 crore in the 3,500 Mw gas-based plant at Dadri in Uttar Pradesh.

BSES has pared its workforce by about 4,500 in Delhi through a voluntary retirement scheme.

Current favourite

• Reliance to issue conventional shares with voting rights and non-conventional shares with differential voting rights
• Shares with non-voting rights entitled to an additional 5% dividend
• BSES will be officially renamed Reliance Energy next week