Reliance Petroleum's Triple Option Convertible Debentures (A)


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Case Details:

Case Code : FINC016
Case Length : 7 Pages
Period : 1993-2002
Pub. Date : 2002
Teaching Note : Available
Organization : Reliance Petroleum Limited
Industry : Petroleum and Petrochemicals
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts

Sources of Finance

An organization can raise money through public investors by issuing various financial instruments. These can be in the form of equity shares, preference shares, debentures and bonds and can be classified into two broad categories of equity and debt.

EQUITY

Equity refers to the raising of funds from the public by issuing shares from the equity share capital of the company at face value or at a premium. Companies that have a proven track record or new companies promoted by well-known existing companies can issue shares at a premium. In India, the price of the issue is determined in consultation with the Lead Manager for the issue. However, the price has to be justified as per the Malegam Committee recommendations. Though equity is the most common source of raising funds, it involves larger issue expenses including underwriting costs, registration costs, listing fees, lead manager expenses etc...

TOCDS - A Closer Look

The TOCDs issued by RPL were an innovative variant to the Reliance Group's general policy of raising capital through the issue of convertible securities. Each TOCD was issued for a face value of Rs 60.

The TOCDs were made more attractive by allowing the payment to be made in installments of the sum of Rs 60 (Refer Table I) spread over a period of three years. The instrument included two equity shares allotted to the investors at the face value, of Rs 10 each. These two equity shares were alloted as soon as the first instalment of Rs.20 was paid. The remaining amount of Rs 40 comprised a non-convertible portion accompanied by two detachable warrants , each of which could be converted into an equity share by paying Rs.20 per share i.e. at a premium of Rs.10. The rights against the warrants could be exercised between the forty seventh and forty ninth months after the opening date of the issue i.e. September 23, 1993...

Exhibits

Exhibit I: Risk Factors of RPL Public Issue
Exhibit II: Lead Managers to RPL Issue

 

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