A share exchange bid to help shareholders of Indian tycoon Mukesh Ambani's unlisted retail business monetize their investment has given the unit a $34 billion market value.
According to a so-called agreement on the company's website, shareholders in Reliance Retail Ltd. will swap four shares for one unit of their listed parent firm Reliance Industries Ltd.
With the market capitalization of Reliance pegged at 9.6 trillion rupees ($135 billion), based on a Bloomberg estimate, the stock swap values the subsidiary at 2.4 trillion rupees.
On top of helping employees of Reliance Retail monetize illiquid share options, the swap also gives the first indication of the unit's valuation at a time when Ambani, Asia's wealthiest person, is wooing retail investors.
After an investment spree of $76 billion over the past five years, he has promised to trim down the group's net debt to zero by March 2021, most of it on its massively disruptive telecom carrier.
Reliance's valuation is higher than that of Tesco Plc, the biggest supermarket chain in the United Kingdom, with an estimated value of $32 billion. Avenue Supermarts Ltd., which operates India's biggest supermarket chain, is also double that.
The share swap may be a move towards creating a benchmark market value, setting a floor price for any potential strategic investments in Reliance Retail, Rajiv Sharma, Mumbai-based analyst at SBICAP Securities Ltd, said.
Analysts estimates Reliance Retail's valuation at plus or minus 30 percent of that benchmark value. An email sent to the spokesperson for Reliance Retail looking for valuation comments went unanswered.
The shares of Reliance Industries were down 2 percent to 1,515,4 rupees in Mumbai on Thursday, outstripping the fall in the S&P BSE Sensex index, which shed 0.6 percent.
In August, Ambani told shareholders that proposals are in the works to seek investors in retail and telecom units. He said that in the next coming months, the company will induct top global partners in these ventures and shift towards listing the two undertakings in the next five years.
Reliance's organized retail profits were up 1.3 trillion rupees in the year, an 89 percent increase. Earnings before interest and taxes soared 169 percent to 55.5 billion rupees, according to a statement from a company that did not define a net income for the sector.
With 10,900 retail outlets spread across India, Reliance Retail operates the country's biggest chain of supermarkets and consumer electronics shops as well as being the leading wholesale supplier to India's army of small shopkeepers.
