Reliance Retail pledges gold for loan

Mukesh Ambani, whose home - Antilla on Mumbai's posh Altamount Road - was in the news recently for being the most expensive billionaire home in the world, has proven once again that he is a clever entrepreneur at heart.

Peers in India may pale before his business empire in size - Reliance Industries, made profits of Rs 22,458 crore on revenues of close to Rs 4.3 lakh crore in 2013/14 - but when it comes to financing new businesses, he doesn't take family wealth or company's cash surpluses for granted.

The 57-year-old Ambani's fledgling retail venture, Reliance Retail, recently approached the country's largest bank, the State Bank of India (SBI), for a loan of about Rs 600 crore. What surprised bankers in the country's financial capital, Mumbai, was that the largest private-sector conglomerate applied for a 'metal gold loan facility', where a concessional interest rate is granted as per a government interest subsidy scheme.

The scheme is primarily for jewellers to avail of metal gold loans from banks, for domestic and export business. The interest rate on these is well below the minimum base rate of the bank, which is currently 10.95 per cent.

"The loan facility has been granted to Reliance Retail," say sources in SBI.

Reliance Retail, which sells gold, diamond and bridal jewellery through a business called Reliance Jewels, is pledging jewellery stocks in all its stores as a pledge.

Reliance has refused to confirm or deny the story.

The loan-against-gold financing is the latest in a series of innovative financing arrangements at Reliance. In the late 1990s, Mukesh Ambani's father, Dhirubhai Ambani, raised overseas 'Yankee bonds' for the longest maturity period of 50 to 100 years at a competitive rate, when domestic interest rates were high. Yankee bonds were unheard of in Indian corporate history then.

Mukesh, like his visionary father, knows that the right financing strategy reduces the payback period. The current concessional rate will go a long way in supporting the retail venture, which is highly capital-intensive.

Reliance Retail has struggled since its inception in 2006. It burnt a lot of cash in the initial years because of the downturn in the economy after 2008. In the just concluded financial year, the company has started making some cash profits. Its revenues are now close to Rs 15,000 crore. This is a big achievement in the current challenging economic environment, with GDP growth at around five per cent.

In 2013/14, Reliance Retail added 225 stores with a total operating area of 2.7 million sq ft. As on March 31, 2014, it had a total of 1,691 stores in 146 cities, with a total operating area of 11.7 million sq ft.

*An earlier version of the story had Reliance Industries in the headline, not Reliance Retail