Reliance Industries sells $658 million of treasury shares

The Indian oil and gas giant offloads part of the treasury shares held by its Petroleum Fund in a fixed-price deal that is upsized by 50%.

Reliance Industries Limited (RIL), India's largest listed company by market capitalisation, yesterday raised Rs13.88 billion ($658 million) from the sale of treasury shares. The deal, which was launched on Wednesday evening and completed before the Indian market opened yesterday, was upsized by 50% to make the most of the available demand.

The company, which is controlled by Mukesh Ambani, didn't say what it would use the money for, but analysts speculate that it may be building up a war chest for overseas acquisitions as returns from its domestic oil and gas field have been stagnating. Aside from exploration, the company also owns downstream refining and petrochemical chemical plants.

RIL's share price has also recently returned above Rs2,000, and is not too far from the 2009 high of Rs2,367 in May, making this an opportune time to raise equity funds, the analysts say. The company's share price is up about 75% this year. In a statement issued yesterday, RIL said the treasury shares are held by the Petroleum Trust, which is a unit of RIL, and carried on its books at Rs158 per share.

Petroleum Trust offered 10 million shares with an option to upsize by another 10 million to a total of 20 million shares. The price was fixed at launch at Rs2,125, which represented a discount of 2.7% versus Wednesday's close of Rs2,184 on the National Stock Exchange of India. According to a source, the demand was enough to upsize to 15 million shares, which accounted for about 0.7% of the outstanding share capital. The trust holds about 11% of RIL in the form of treasury shares so yesterday's sale was but a small portion of its holdings. The trust doesn't have a lockup, so is free to sell the shares at any time.

RIL is an extremely liquid stock with a turnover of about $200 million per day, which meant the thin discount may not have seemed that attractive to some investors. It is also widely held by international investors already. However, the bookrunners were said to have been able to identify a few long-only international funds that were short of the stock and these helped drive momentum in the book. And when the US stockmarket gained more than 1% over night and other Asian markets opened higher yesterday, momentum traders joined in and then the domestic long-only funds as well. Overall, about 50 accounts were said to have participated with about 50% of the demand coming from Asia, 20%-25% from the US, 15%-20% from Europe and the remaining 10% from India.

The source added that RIL, because of its more than 13% weighting in the benchmark Sensex index, is treated by some investors as a proxy for the entire India market and this may have helped lure some investors to the transaction. Even though the deal will not result in any dilution, RIL's share price fell 4.5% yesterday following the share sale, to end at Rs2,086.15. The broader market moved slightly higher.

A banker said the deal ranks as the second largest block trade in India ever after a $783 million sell-down by the founders of Indian property developer DLF in May this year.

The RIL deal was jointly arranged by Citi and Bank of America Merrill Lynch.

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