Reliance Energy to get Rs 8,000 cr from promoters

MUMBAI: Anil Ambani and firms controlled by him will invest Rs 8,000 crore in Reliance Energy (REL) in a move that would help the company to double its net worth and increase its borrowing limit. The infusion is proposed through a preferential offer of shares to Reliance-Anil Dhirubhai Ambani Group (R-ADAG).

The preferential offer will be made at a 5% premium to the market price at Rs 1,812 per share. REL scrip closed at Rs 1,738.10 at the Bombay Stock Exchange on Friday. After the equity infusion, the promoter’s stake will increase to 43-45% from the current 35.89%, said REL officials. It is significant considering that Anil Ambani invested in REL at about Rs 600 per share two years ago.

“We have a great sense of excitement at the unprecedented opportunities unfolding before the Reliance Energy group in the high growth areas of power and infrastructure development,” said R-ADAG chairman Anil Ambani in a statement.

The Rs 8,000 crore equity infusion will be the second largest by the promoters of an Indian company after the Rs 17,000 crore infusion in Reliance Industries. In February 2007, Mukesh Ambani and other promoters of Reliance Industries had decided to infuse nearly Rs 17,000 crore to raise their stake to 54.53%.

Reliance Energy is expected to divert a chunk of the fund infused to its infrastructure projects. In October, the company had approved a proposal to transfer its infrastructure projects to a separate 100% owned subsidiary. The company’s infrastructure orderbook stands at Rs 14,000 crore, which includes five roads projects, two metro rail projects and a Rs 6,500-crore real estate project in Hyderabad.

“The fund will not be used for the projects of Reliance Power, a subsidiary of REL awaiting SEBI’s approval for its initial public offering,” said an REL official. Post-equity infusion, REL expects that its net worth will jump to Rs 20,000 crore by March 2009 from the current Rs 10,542 crore. At a conservative debt-equity level of 1:1, the company can borrow up to Rs 20,000 crore.

Life Insurance Corporation, New India Assurance, Oriental Insurance, General Insurance, National Insurance and United India Insurance, which collectively hold 18% of equity, will be provided an opportunity to participate in the proposed offering, the company said.

“The 5% premium to the current market price shows the confidence of the promoters in the company. The company is vying for another one lakh crore orders, which are at different levels of consideration and bidding,” said industry analysts. Post-infusion book value per share will increase to Rs 720 from Rs 447.

According to the company statement, REL is engaged in several megaprojects in power generation, transmission and distribution, as well as infrastructure development in areas such as highways, bridges, metro rail and real estate. A large number of new mega-infrastructure projects are also soon being put to bid.

Post-infusion, REL may rank among the 20 valuable private sector companies in India in terms of all major financial parameters, including assets, sales, net worth, profits and market capitalisation, reflecting the company’s inherent financial strength, said the statement.