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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An Innovative Financial Instrument Contd...

They also said that the Reliance Group was among the few Indian business houses, which recognized the importance of public investors, discovered the vast untapped potential of capital markets and channelised it for the growth and development of the industry. Commenting on the success of the RPL TOCDs issue, Business Standard4 stated, "Reliance's uninterrupted dividends and increasing market value were sure signs for the success of the TOCD issue."

The Reliance Petroleum Story

Reliance Group was among the largest business houses in India with interests in several businesses including textiles, petrochemicals, petroleum products, oil & gas, power, telecom, synthetic fibers, fibre intermediates, financial services, refining & marketing and insurance. The significant success, which the RIL Group had witnessed over the years, could be mainly attributed to the founder and former chairman of Reliance Group, Dhirubhai H. Ambani. In 1950, at the age of 17 he went to Aden (now part of Yemen) and worked for A Besse & Company Ltd., a distributor for Shell products. In 1958, he returned to Mumbai and started his first company, the Reliance Commercial Corporation (RCC), a commodity trading enterprise and an export house.

In 1966, as a first step towards its highly successful strategy of backward integration, he set up a textile mill called Reliance Industries Limited (RIL) in Naroda, Ahmedabad. In 1975, a technical team from the World Bank certified that the Reliance textile plant was "excellent according to developed country standards."

In 1977, RIL went public. For much of the 1980s, Reliance Group's fund-raising was centred on its flagship company RIL, which came out with the public issue of equities as well as convertible debentures.

The use of convertible financial instruments to raise finances from public was actively practiced by Reliance to ensure that its debt equity ratio did not exceed 1:1.

Since the first public issue, the RIL Group had made efforts to build an investor friendly image. RIL had a history of paying uninterrupted dividends with the dividend growing from 15 per cent in 1976-77 to 55 percent in 1994-95...

Excerpts >>

4] Business Standard Research Bureau, August 2002.


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