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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"Finance will never be a constraint in executing projects because Indian investors will provide me with the necessary resources."

- Dhirubhai Ambani, Former Chairman, RIL Group.

Reliance Petroleum Limited TOCD Issue

Reliance Petroleum Limited (RPL), a part of the Reliance Group1 came up with an initial public offering (IPO) in September 1993 to partly finance its Rs 51.42 billion refinery project. The total public issue was of Rs. 21.72 billion while the net offer to the Indian public was Rs. 8.62 billion.

The issue was the largest during that time in India and was made available to the public through an innovative financial instrument in the form of Triple Option Convertible Debentures (TOCDs). The TOCD was not structured as a conventional debt instrument. Each TOCD was issued for a face value of Rs.60. This included two equity shares allotted to the investors at a face value for Rs 10 each. The remaining Rs 40 comprised of a non-convertible accompanied by two detachable warrants.2 The TOCD holders could exercise the option to convert their instrument into equity shares in September 1997 that is, between the 47th and 49th months from the date on which the TOCD was issued (Refer Exhibit I for complete details of the TOCD issue).

Some market observers expressed doubts as to whether this mega scheme would be fully subscribed to given the depressed condition of the stock market at that time. Belying these fears, RPL's issuing of TOCD was successful. However, despite the success in obtaining the required finances, the RPL project could not be commenced start as scheduled.3

The delay was caused by the were mainly due to the scaling up of the proposed capacity from the initial nine million to 18 million tons and eventually to 27 million tons. With this increase in capacity, RPL became the world's largest grassroot refinery and seventh largest operating refinery in the world. The project commenced with the acquisition of land, which happened in December 1994. The construction commenced only in the year 1996, with the leveling of land and laying of equipment foundations. The increase in the plant's capacity from 9 million tons to 18 million tons was officially announced in April 1998, followed by a further increase in capacity in December 1998 to 27 million tons. The project was eventually commissioned in the financial year 1999-2000.

Reliance Petroleum's Triple Option Convertible Debentures (B) - Next Page>>

1] The Reliance Group is among India's largest business houses, involved with interests in several businesses including textiles, petrochemicals, petroleum products, oil & gas, power, telecom, synthetic fibers, fibre intermediates, financial services, refining & marketing and insurance.

2] A warrant entitles the holder to buy a given number of shares at a stipulated price. A detachable warrant is one that can be sold separately from the original instrument it was issued with.

3] The project was to commence its operations during the financial year 1996-97.


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