Reliance Petroleum's Triple Option Convertible Debentures (B)

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Case Details:

Case Code : FINC017
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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The New Option

On April 15, 1998, RPL convened an extraordinary general meeting (EGM) to seek shareholders' approval to hike its authorized share capital from Rs 50 billion to Rs 70 billion.

The purpose was to enable investors to use the new conversion option, which involved phased allotment of three equity shares with a face value of Rs 10 each, in lieu of Rs 40 paid-up non-convertible debentures along with the detachable warrants. As per the option, the first equity share at par would be allotted in November 1999 (the 6th year), followed by two equity shares at a premium of Rs 5 each in November 2000 (the 7th year) and November 2001 (the 8th year). The period from May 1998 to June 1998 was the period during which the conversion offer would operate. In case the TOCD holders did not want to opt for the new option, they could get the non-convertible portion of the TOCD redeemed in three installments...

RPL - Investor Returns?

The Reliance Group had always prided itself in creating value for its investors. This was visible through the RPL share prices from the very first year when it began operating.

The share price witnessed a sharp rise from around Rs.22 at the beginning of the financial year 1999 to about Rs.60 by the end of it. RPL's financial performance over the next two financial years had been impressive with a net profit worth Rs 14.64 billion in 2000-2001 and Rs 16.74 billion in 2001-2002 on revenues amounting to Rs 309.63 billion and Rs.331.17 billion respectively. However, during September 2002, the share price of RPL stood at around Rs.23. The earnings per share (EPS) of the RPL stock remained at three, but there had been a sharp decline in its P/E multiple from 18 in 2001 to only 8 in 2002. There was a delay in dismantling the administrative pricing mechanism, which was expected to benefit RPL profits significantly...


Exhibit I: Details of the RPL TOCD Issue Made in September 1993


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