According to two senior industry officials familiar of the plans, Reliance Industries is likely to sell a further 8–10% interest in Reliance Retail Ventures Ltd (RRVL) to fund expansion, pay off debt, and be ready for the retail division of the conglomerate’s IPO.
According to the executives, this procedure, which is expected to take place in phases over 12 to 15 months, will be crucial for the anticipated IPO by the holding company for Reliance’s retail operations.
The stake sale is important because the IPO size for RRVL would be enormous at its current valuation of $100 billion (8.25 lakh crore), and the market might not have the liquidity to absorb such an offer. As a result, the firm believes that an additional 7–10% share dilution will reduce the size of the IPO and ensure its success because, by that time, its valuation is also likely to increase, according to the sources.
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Listing Regulations and Reliance Retail’s Situation:
According to India’s listing regulations, at least 25% of a firm must be owned by the general public, including financial investors. Global investors currently own about 11% of RRVL, including Qatar Investment Authority (QIA), which on Wednesday invested $997 million for a 0.99% interest in the company. Less than 89% is owned by Reliance Industries, and some shares are held by small investors.
According to one of the executives, RRVL would need to issue around 14% more shares at the present valuation, which would make the IPO too large to be profitable. Therefore, before the IPO, Reliance Industries will need to sell more equity in RRVL to either current or new investors, he said.
“RRVL can offer around 5% of its stock to the general public in the IPO if it is able to sell about 20% (including the current public stake) to investors. At the current price, that would bring the IPO amount close to $5 billion, or 41,000 crore. And because the company’s valuation will have increased by the time the IPO occurs, RRVL must keep selling shares to investors in order for the IPO to be successful, the executive said. According to the sources, RRVL intends to support shop development and pay off debt using the revenues from pre-IPO stake sales.
In a research released on Thursday, Morgan Stanley stated that Reliance Industries has invested $10 billion in the retail business over the previous two years with a focus on enhancing upstream and downstream integration as well as expanding its brand portfolio.
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