Will RIL Succeed In Second Attempt To Remove Minority Investors From Reliance Retail?

RIL is likely to face shareholders' resistance over price.

<div class="paragraphs"><p>File photo of Mukesh Ambani. (Source: Reuters)</p></div>
File photo of Mukesh Ambani. (Source: Reuters)

Reliance Industries Ltd. is seeking to squeeze out minority investors from its indirect retail subsidiary, Reliance Retail Ltd.

To be clear, RIL's retail subsidiary is Reliance Retail Ventures Ltd. This company is the holding company for all retail businesses, including Reliance Retail Ltd.

In fiscal 2021, Reliance created a holding company for retail business— Reliance Retail Ventures—and sold 10% stake to strategic investors for Rs 47,265 crore, at a valuation of little over Rs 4.2 lakh crore.

It sold stake to marquee investors like Silver Lake, KKR, Mubadala, Abu Dhabi Investment Authority, GIC, TPG, General Atlantic, and Saudi Arabia’s Public Investment Fund.

This will be the second attempt to squeeze out the minority investors from the step-down subsidiary.

In December 2020, it planned to swap shares of Reliance Retail with the share of Reliance Industries.

According to the December 2020 scheme of arrangement uploaded on Reliance Industries' website, the shareholders of Reliance Retail holding shares in physical form on the record date will get one share of RIL for every four shares. 

The scheme of arrangement in 2020 didn't involve RIL. But, Pranatharthi Commercials Pvt., set up by two Reliance Group employees—Raja Kolumum Ramachandran and Laxmidas Vallabhdas Merchant—will acquire the RIL shares from the market and swap the same with the specified shareholders of Reliance Retail, according to the scheme.

In December 2020, given the share swap ratio and the number of shares held by these retail shareholders, Pranatharthi Commercials would have to acquire at least 8.94 lakh shares. This values the retail arm of India’s most valued firm at around Rs 2.79 lakh crore, according to BQ Prime calculation. This swap was dropped after strong investor feedback at the shareholder meeting.

RIL shares were trading at Rs 1,562 apiece on Dec. 11, 2020, valuing each Reliance Retail share at Rs 390.5 apiece. Today, Reliance Industries is offering Rs 1,362 apiece to the same investor—a jump of 3.5 times in 2.5 years.

But, there is an issue here.

Reliance Retail is traded on the over-the-counter market between Rs 2,500-3,000 apiece. And this time RIL is likely to face shareholders' resistance over the price.

RIL proposes to reduce capital in Reliance Retail to the extent of shares held by minority investors through a NCLT process. While the information on the number of shares is not available, shareholders will seek higher valuation to exit at the shareholder meet and at the NCLT. 

It needs to be seen if RIL will agree to higher valuation, so that it paves the way for value unlocking of Reliance Retail Ventures.