Anil Ambani is a dedicated marathon runner. That skill was in full display on Tuesday as he moved from one annual general meeting to another— four in all — from early morning to the evening.
In the process, the chairman of R-ADAG, now known as Reliance Group, spelled out his detailed blueprint for each of his group companies: Reliance Capital, Reliance Communications, Reliance Power and Reliance Infrastructure. The game plan involves setting up a bank (to be called ‘Reliance Bank’), increasing promoter holding in RCom and stake sale in the telecommunications, asset management and general insurance businesses.
Investors did respond to Ambani’s grand plan, sending the entire R-ADAG pack in the green — from 1.5 per cent to four per cent. The stake sale plans tie in well with the group’s search for funds to pare debt, which has been weighing on its performance. RCom is in advanced talks with many investors to sell a stake in telecom tower firm Reliance Infratel. The company has been looking to raise funds via stake sales for more than a year but hasn’t been successful so far, and as of March 31, 2011, it had debt of Rs 32,000 crore.
The group has, of late, been embroiled in the 2G spectrum allocation controversy. Three of its executives are still in jail in connection with that. Ambani said the possible Reliance Infratel transaction could be India’s largest private-equity deal ever. “I am sure that we will be able to move forward expeditiously,” he said. The largest PE deal in India so far involved a clutch of investors buying a stake in Bharti Infratel, the tower arm of Bharti Airtel, for about $1 billion in December 2007.
Value unlocking was a recurring theme. Reliance Capital, Ambani said, was in discussions with Japan’s Nippon Life for a similar deal in Reliance Mutual Fund. Reliance Capital raised Rs 3,062 crore recently by selling 26 per cent in Reliance Life Insurance to Nippon Life earlier this year.
Ambani said both companies were looking to cut their debt substantially, but didn't specify any level.
The proceeds from the 26 per cent stake sale in the life insurance company would be used to repay the debt of R-Cap and the transaction is expected to be completed over the next few weeks. Following the success of the Reliance Life deal, R-Cap is also exploring opportunities to divest stake in the general insurance arm, Reliance General Insurance.
Ambani said Reliance Bank would tap the low penetration of financial products and services in India. Also, Reliance Capital shareholders had asked for free shares and a special dividend and the request would be placed before the company’s board for consideration.
More importantly, taking advantage of the falling stock price — it has dropped 52 per cent in the last one year — Ambani announced his plans to buy back RCom shares to shore up promoter holding further, up to 75 per cent from the current 67.9 per cent.
On power, Ambani addressed the widespread scepticism and reaffirmed Reliance Power was poised to become the country's largest private sector power generation and coal mining company in five years. Moreover, it has secured funding commitments of $16 billion. Already, approvals for $2.7 billion are in place from different consortia of US and Chinese Exim Banks in lieu of equipment imports from those countries.
“The company’s innovation and financial engineering capability has enabled it to expand sources of funding and secure competitive financing from US-Exim, Chinese and global banks,” he said.
In the immediate term, the company is on track to fire 5,000 Mw operational capacity by the end of calendar year 2012. This will include the first phase of RPower’s first ultra mega power project at Sasan.
Harping on fuel security, Ambani said RPower’s four billion tonnes of captive coal resources in India and Indonesia would insulate it from supply shocks that have impacted many sectoral peers. Coal production from India will begin from next year when RPower will join the league of the world’s top 10 thermal coal producing companies, with a production capability of up to 100 million tonnes per annum.
In the infrastructure space, a large part of RInfra’s current portfolio of projects under development will start generating revenue. “Twenty of our 27 infrastructure projects in development will start generating revenue in the next six months,” Ambani said.
The entire portfolio will require Rs 45,000 crore of investments, but Lalit Jalan, the company’s director, assured, “All the projects have been financially closed.” The company’s debt equity ratio is 0.5:1.
