>RELIANCE INFRASTRUCTURE LIMITED (MORGAN STANLEY)

Additional Capital Infusion Proposed

Quick Comment: The company announced plans to raise Rs43 bn through a fresh equity infusion. The offering is priced at Rs1,000/share (effective price of Rs1,183/share) and subject to shareholders approval.

Background: In January ‘08, the company allotted 43 mn warrants to promoters, which were to be converted at Rs1,822/share by July 19, 2009. The company consequently collected Rs7,835 mn as margin money through this issuance. At a board meeting held over the weekend, the company cancelled the 43 mn equity warrants that were issued then. Subsequently, the board proposed an equity infusion of 42.9 mn shares.

Implications

• The effective cost of purchase comes to Rs1,183/share (Rs1,000/share + 7,835 mn that the company had paid as margin in early 2008); this is 5.5% above the current market price.
  

• If the entire issuance is subscribed to by the promoter group, the promoter holding would increase from 37.6% at end-March 2009 to 47.5% post the issuance.
  

• At end-March 2009, consolidated book value was Rs169 bn, which would increase to Rs212 bn (Rs787/share). This implies a P/B of 1.4x at current levels.
  

Investment thesis: The equity issuance plans should be viewed positively, in our view, as it will allow the company to bid for additional infrastructure and power projects. In addition, it will further bolster its balance sheet. We maintain our Overweight rating on the stock.

To see full report: RELIANCE INFRASTRUCTURE LIMITED