Reliance Industries is likely to use 75% of the proceeds of the rights issue to repay debt. The total size of
the rights issue is Rs.53,100 crore of which nearly Rs.40,000 crore will be used to repay the debt of the
RIL group. Currently, RIL has net debt to the tune of Rs.161,000 crore. However, the full value of the
rights will only be realized by November 2021 as the amount is payable in tranches. Nearly 50% of the
rights infusion will come from the promoters and it could be higher as they have also agreed to take up
any unsubscribed portion of the rights. RIL has plans to become zero net-debt by March 2021.
At a time when most realty companies have been under pressure, Embassy REITS has reported 10% rise
in YOY profits at Rs.461 crore for the Mar-20 quarter. Embassy REITS was the first real estate investment
trust in India to list on the stock exchanges. Overall revenues were also up 8% at Rs.543 crore. For the
full year, the Embassy REIT has distributed Rs.1882 crore to shareholders representing approximately
Rs.24.39 per unit. Despite the vagaries of the market, the stock has delivered 25% return since its listing
last year. Embassy REIT is a pass through vehicle that invests in a portfolio of commercial property.
Tuesday was a disappointment for the markets with the Sensex giving up more than 600 points from the
peak level, although it still closed in the positive. The big gainer of the day was Bharti Airtel which
announced stellar ARPU numbers at over Rs.152; substantially higher than Jio. The surprise gainers on
Tuesday were the multiplex stocks like PVR and INOX which gained between 8% and 15%. Multiplex
stocks had corrected nearly 60% since their peaks in February this year. The bounce is on the hope that
with the lockdown easing, multiplexes may be allowed to function in the next few weeks.
PSU banks took another jolt on Tuesday with the PSU Banking index touching a 15 year low and SBI
touching a 4-year low. PSU banks have borne the brunt of fears that the growth slowdown could lead to
a spate of defaults and PSU banks could be the most vulnerable. In the last one month, the PSU Banking
Index is down by 20% compared to the Nifty correcting by just 3.7%. The disappointment for PSU banks
stemmed from the finance minister’s announcement on suspension of IBC and insolvency proceedings
for a period of one year. That is expected to be substantially credit negative for the PSU banks.
Even as Trump is trying to pressure China by holding interest payments on debt and forcing Chinese
companies to delist, the Chinese government is already actioning Plan-B. As part of the Shanghai-
London stock connect scheme, China has been encouraging its domestic companies to seek listing on
the London Stock Exchange. This alliance was also supposed to give Mainland Chinese investors access
to investing in UK-based companies. Some of the Chinese companies like insurer, China Pacific
Insurance, and China Yangtze Power are due to list in London soon. This would essentially be a GDR
listing in the UK linked to shares on Shanghai Stock Exchange. With the US route getting more complex,
this is the back-up plan for China. It would be interesting to see how the US reacts to this move.
Fitch Ratings is not exactly impressed by the stimulus package. According to Fitch, the actual impact of
the package will only be equivalent to 1% of GDP and not 10% of GDP as claimed by the government.
Fitch pointed out that nearly 50% of the amount of Rs.21 trillion referred to fiscal measures already
announced in the past and the monetary measures of RBI. Even out of the balance 50%, a majority is by
way of loans by banks with a partial or full government guarantee. Fitch has pointed out that the fiscal
conservatism shown by the government could seriously impair its GDP growth targets for FY21.