MUMBAI  - Reliance Industries is bringing popular shopping purchase plans to the capital markets. Investors participating in the Indian conglomerate’s $7 billion discounted rights issue, which closed on Wednesday, will pay one-quarter of the issue price upfront and the rest in chunks until November 2021. Boss Mukesh Ambani’s clever use of “buy now, pay later” helps sidestep a Covid-19-induced cash crunch.

Outfits such as Australia’s Afterpay have made buying goods in installments popular again. Indians, too, are using this form of credit for everything from cars to headphones. And just as it is for retailers, it might be the only way for Reliance to get what it wants. Its offering is a record size in India and will rank as one of the top 10 rights issues in the world by a non-financial company, according to Dealogic data, and comes as ordinary investors are squeezed. Ambani will use the funds to trim debt at his $139 billion company, as he targets a cleaner balance sheet.

“Partly paid shares” come out of a dusty financial playbook. The UK government enlisted them in 1970s and 1980s privatisations, including of British Gas, British Telecom and British Airways. Although these equity plans still pop up – India’s Tata Steel used one in 2018 – they largely went out of fashion because they create an uncertain liability. They can also introduce unwanted arbitrage. Reliance investors are able to sell their partly paid shares, which will be separately listed, any time before the final call date.

Ambani’s deal had some extra pull. Over the past six weeks, his Jio Platforms telecom and tech division lined up $10 billion from Facebook, KKR  and others, which crystallised a rich $68 billion valuation. That also helps underpin the sprawling oil-to-retail enterprise. What’s more, the chairman pledged to buy any unsubscribed shares, on top of ones taken up by the 50% stake he and related entities own.

Reliance is a blue-chip company, issuing equity from a position of strength on the back of fresh backing from A-list outsiders. It also has no desperate need of cash. So while retailers and consumers may sustain the buy-now-pay-later trend, few companies will be in position to offer the same to their shareholders.

 

CONTEXT NEWS

- Reliance Industries on June 3 closed subscriptions for a rights issue worth 531.2 billion rupees ($7 billion) with the order books 1.6 times covered. The entire issue was completed digitally.

- The Indian conglomerate is issuing shares at 1,257 rupees each, a 14% discount to the closing price on April 30.

- Investors are required to pay 25% when they apply for their subscription, another 25% in May 2021, and the balance 50% in November 2021.

- Mukesh Ambani, the chairman and largest shareholder, had agreed to backstop the issuance by buying any unsubscribed shares.

 

(Editing by Jeffrey Goldfarb and Jamie Lo) ((una.galani@thomsonreuters.com; Reuters Messaging: una.galani.thomsonreuters.com@reuters.net))