RIL to use own funds to buy BSES

MUMBAI, MAY 22: Reliance Industries Ltd (RIL), which has announced an open offer to take over electricity firm BSES, is planning to use in...

MUMBAI, MAY 22: Reliance Industries Ltd (RIL), which has announced an open offer to take over electricity firm BSES, is planning to use internal accruals for buying the Mumbai-based firm instead of borrowings to fund the takeover.

Company officials said that Reliance has enough’ funds in its balance sheet to buy BSES. The BSES acquisition would cost the company around Rs 600 crore. In fact, a day before the BSES announcement, the company announced thetakeover of DCL Polyster from Hyderabad-based Rajus at a undisclosed price. It’s now negotiating with Century Enka for a possible buyout.

“We are not looking at raising resources — either in the form of debt orshares — to fund our acquisitions.. we have enough funds of our own,” Reliance officials said.

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The financial institutions, who hold the key to the success of a bid for electricity firm BSES on the strength of their large shareholding, will take a decision within two weeks (before the offer opens in June) on whether to back Reliance or not, officials said. “FIs might ask for a premium on sale of bulk shares but I don’t think FIs will oppose RIL takeover of BSES considering the FIs’ bad track record in running private companies,” FI sources said.

The financial institutions, led by Life Insurance Corporation (LIC), General Insurance Corporation (GIC) and the Unit Trust of India (UTI) hold 12 per cent stake each in BSES while Industrial Development Bank of India (IDBI) holds around 3-4 per cent. FIs are expected to be the main factor in the move by Reliance to hike its stake in the professionally managed BSES to 35 per cent from the current 15 per cent.

On Monday, BSES shares closed Rs 10 down at Rs 244.85 on the Bombay Stock Exchange while Reliance shares were down Rs 3.70 at Rs 312.

Meanwhile, RIL has decided to broad base its board of directors by bringing in two more non-executive directors thus increasing the board’s strength from 12 to 14.

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In its annual general meeting (AGM) notice sent to its 30-lakh odd shareholders, the company said that in keeping with the mandatory requirements stipulated in the corporate governance code, it is necessary to increase the representation of non-executive directors on the board. Hence, the resolution to increase the board’s strength.

The company’s AGM to be held in Mumbai on June 13 has also sought shareholders’ approval for an elaborate buy-back plan and Employee Stock Option scheme. The company, which has free reserves of over 1,500 crore, is planning to use Rs 1,100 crore for buy-back of 5 per cent of its equity at Rs 303 per share.

For ESOP, the company plans to set up a trust to acquire shares and also look at the option of allotting shares directly to its employees. The shares could be issued through American Depository Receipts (ADRs) and/or any other securities even as the company is planning to convert its GDRs into ADRs to be listed on the New York Stock Exchange (NYSE) in the current fiscal.