Mumbai, Sept. 27: Will Anil Ambani’s Reliance Communications now turn to plan E? India’s No. 2 cellular carrier, which has tried at least four different ways to raise capital over the past year or so, will on Tuesday seek permission from shareholders for the right to sell fresh equity.
Beset by a bruising debt load and falling profits, Reliance Comm could raise more than $1 billion with an issue of up to 15 per cent of its existing share capital, based on its current share price, although it is not expected by company watchers to do so immediately.
Given the company’s beaten-down stock price, such approval may be meant instead to keep an option open for when Mr Ambani could fetch a higher price for shares in the company.
But having already explored various asset sales, the IPO of a unit and the sale of a stake in the firm, options are narrowing.
The company declined to comment on capital-raising plans. Reliance Comm’s net debt is more than four times forecast earnings before interest, tax, depreciation and amortisation for the year to March 2011, according to brokerage estimates.
“One thing is sure: they have to raise money,” said Jagannadham Thunuguntla, head of equity at SMC Capitals.
“It’s not only a question of valuation now, it’s also a question of what route is available,” he said, adding that selling shares to institutions would be easier than the asset sales and IPO plans it has also explored.
The good news for Reliance Comm is that conditions for raising equity are improving in India, with foreign inflows powering a rally in the benchmark Sensex that last week sent the index to 32-month highs.
The success of state-run Coal India’s IPO next month, which at up to $3 billion would be the country’s largest, will be key to determining investor appetite for big new issues.
“RCom’s main challenge is to get their gearing down,” said Mr Saurabh Mukherjea, of Execution Noble.
“If the CIL IPO has a strong response, the comfort that there is global appetite for Indian paper, and in the wake of that I think you will see a whole raft of big-ticket QIPs,” or qualified institutional placements, he added.