RIL's Rs 83,000 crore cash pile: A hint of impending big-bang acquisitions?
A cash pile of almost Rs 83,000 crore (that's over $15 billion) can look daunting, yet theMukeshAmbani-promoted Reliance IndustriesBSE -1.27 % Ltd's (RIL's) stash is not a patch on the cash lying with some of the global biggies. The top five US companies together (Apple, Microsoft, Google, PfizerBSE 0.64 % and Cisco) had cash of $347 billion on their books at the end of 2012. This global culture of holding on to cash has led to a school of managing cash — and actively shuffling it around among instruments every year.
As its treasure has bloated, RILBSE -1.27 %too has learnt a few tricks. Its treasury team did quite a bit of shuffling around in fiscal year 2013. While RIL did not respond to questions emailed on the subject, sources close to the company's treasury officials said the sole objective has been to maximise returns from the treasury. After all, the earnings from the cash pile through interest and other gains (of Rs 7,998 crore) accounted for 38% of the company's net profit in fiscal year 2013.
Cash Management
A perusal of the annual report for fiscal year 2013 shows there has been some big shifting of cash in the RIL treasury. Around Rs 15,720 crore held as certificate of deposits (CDs) with banks has been liquidated. The move was forced in a way as the Reserve Bank of India(RBI) frowned upon the practice of banks creating these CDs with high interest rates towards the end of a financial year to spruce up the balance sheet. The RBI asked banks not to create such CDs and as a result this chunk of money had to be shifted. Most of this money (Rs 12,000 crore) seems to have moved to a category of unquoted mutual funds.
Kuntal Sur, director of financial risk management at KPMG, says: "Unquoted mutual funds do not have to be marked-tomarket. Therefore, even if the market falls a bit it does not affect the balance sheet. Also these are usually short-term and money can be easily taken out if needed." Khushroo Panthaky, partner at Walker Chandiok & Co, says often unquoted mutual funds have very specific investment areas and can offer better returns to a company. RIL also increased its investment in short term fixed maturity plan quoted mutual funds — from Rs 4,036 crore as on March 31, 2012 to Rs 6,493 crore a year later — a 60% increase.
RIL now also has Rs 534 crore invested in government of India securities — up from Rs 5 crore last year. That apart another Rs 650 crore has been invested in long-term quotedgovernment securities too. It has placed another Rs 300 crore in bonds issued by Tata Sons. The biggest jump has also come in instruments that hold the biggest chunk of its cash - bank fixed deposits (FDs).
RIL's bank FDs have gone up from Rs 38,709 crore to Rs 48,792 crore. Most of this, almost three-fourths, is in deposits that have a tenure of less than a year. Sur of KPMG feels there are two scenarios when a company keeps the bulk of its funds in short-term deposits. Either it is expecting interest rates to go up or it is gearing up for an acquisition or plans massive capital expenditure. Clearly, for RIL it is the second scenario as interest rates are expected to fall in India, and RIL is investing heavily in telecom and retail and acquisitions is an immensely probable avenue for growth.
As its treasure has bloated, RILBSE -1.27 %too has learnt a few tricks. Its treasury team did quite a bit of shuffling around in fiscal year 2013. While RIL did not respond to questions emailed on the subject, sources close to the company's treasury officials said the sole objective has been to maximise returns from the treasury. After all, the earnings from the cash pile through interest and other gains (of Rs 7,998 crore) accounted for 38% of the company's net profit in fiscal year 2013.
Cash Management
A perusal of the annual report for fiscal year 2013 shows there has been some big shifting of cash in the RIL treasury. Around Rs 15,720 crore held as certificate of deposits (CDs) with banks has been liquidated. The move was forced in a way as the Reserve Bank of India(RBI) frowned upon the practice of banks creating these CDs with high interest rates towards the end of a financial year to spruce up the balance sheet. The RBI asked banks not to create such CDs and as a result this chunk of money had to be shifted. Most of this money (Rs 12,000 crore) seems to have moved to a category of unquoted mutual funds.
Kuntal Sur, director of financial risk management at KPMG, says: "Unquoted mutual funds do not have to be marked-tomarket. Therefore, even if the market falls a bit it does not affect the balance sheet. Also these are usually short-term and money can be easily taken out if needed." Khushroo Panthaky, partner at Walker Chandiok & Co, says often unquoted mutual funds have very specific investment areas and can offer better returns to a company. RIL also increased its investment in short term fixed maturity plan quoted mutual funds — from Rs 4,036 crore as on March 31, 2012 to Rs 6,493 crore a year later — a 60% increase.
RIL now also has Rs 534 crore invested in government of India securities — up from Rs 5 crore last year. That apart another Rs 650 crore has been invested in long-term quotedgovernment securities too. It has placed another Rs 300 crore in bonds issued by Tata Sons. The biggest jump has also come in instruments that hold the biggest chunk of its cash - bank fixed deposits (FDs).
RIL's bank FDs have gone up from Rs 38,709 crore to Rs 48,792 crore. Most of this, almost three-fourths, is in deposits that have a tenure of less than a year. Sur of KPMG feels there are two scenarios when a company keeps the bulk of its funds in short-term deposits. Either it is expecting interest rates to go up or it is gearing up for an acquisition or plans massive capital expenditure. Clearly, for RIL it is the second scenario as interest rates are expected to fall in India, and RIL is investing heavily in telecom and retail and acquisitions is an immensely probable avenue for growth.
Borrowings From Abroad
However, the move to invest in government securities, both long term and short term, indicates a call on Indian interest rates by theRIL treasury managers. Says Sudip Bandyopadhyay, MD & CEO of Destimoney Securities: "Deployment in G-secs, fixed deposits, fixed maturity plans clearly shows RIL believes that domestic interest rates will come down in the near future and hence is locking in funds at high returns." He adds: "While the available liquidity is providing good returns to RIL, this war chest provides RIL with an opportunity to look at large acquisitions at an appropriate time."
While RIL reported a net profit of Rs 21,003 crore for the year ended March 31, 2013, another reason for the increase in the cash chest is that RIL borrowed from abroad through consecutive bond issues around a year back.
KPMG's Sur feels that for any company that has a huge foreign currency exposure (the bulk of RIL's earnings come from exports), borrowing at low cost abroad and investing it in India makes sense. "Globally it is possible to borrow at very low rates — Libor plus 0.5 to 0.6 — and even if you add the cost of hedging on those funds to this, one can get better rates in India and invest here." Also, consider that RIL spent Rs 3,366 crore for buying back shares to support its stock that has not been doing too well in the markets. Without this the cash chest would have been even bigger.
Will this point out to a period of investing or big-bang acquisitions? The investing has already started with a series of announcements for capital expenditure in telecom infrastructure. Will Ambani also take the acquisition route to growth? Watch this space.
However, the move to invest in government securities, both long term and short term, indicates a call on Indian interest rates by theRIL treasury managers. Says Sudip Bandyopadhyay, MD & CEO of Destimoney Securities: "Deployment in G-secs, fixed deposits, fixed maturity plans clearly shows RIL believes that domestic interest rates will come down in the near future and hence is locking in funds at high returns." He adds: "While the available liquidity is providing good returns to RIL, this war chest provides RIL with an opportunity to look at large acquisitions at an appropriate time."
While RIL reported a net profit of Rs 21,003 crore for the year ended March 31, 2013, another reason for the increase in the cash chest is that RIL borrowed from abroad through consecutive bond issues around a year back.
KPMG's Sur feels that for any company that has a huge foreign currency exposure (the bulk of RIL's earnings come from exports), borrowing at low cost abroad and investing it in India makes sense. "Globally it is possible to borrow at very low rates — Libor plus 0.5 to 0.6 — and even if you add the cost of hedging on those funds to this, one can get better rates in India and invest here." Also, consider that RIL spent Rs 3,366 crore for buying back shares to support its stock that has not been doing too well in the markets. Without this the cash chest would have been even bigger.
Will this point out to a period of investing or big-bang acquisitions? The investing has already started with a series of announcements for capital expenditure in telecom infrastructure. Will Ambani also take the acquisition route to growth? Watch this space.
 Source : By Suman Layak, ET Bureau |
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