Anil Ambani's RInfra completes sale of Mumbai power assets biz to Adani

The deal includes Reliance Infrastructure's integrated business of Generation, Transmission and Retail Electricity Distribution

After completing the sale of one of its marquee assets, the Anil Ambani-promoted Reliance Infrastructure (RInfra) is hoping to turn into a zero-debt company. It is riding on proceeds from the Mumbai distribution deal and expects cash flows from regulatory assets and arbitration cases.

On Thursday, it announced the completion of its Mumbai power distribution business sale to Adani Transmission for Rs 188 billion. The deal also marks the entry of the Adani group into the power distribution business.

 “RInfra’s gross debt will be reduced from about Rs 220 billion to Rs 75 billion, a reduction of 65 per cent in a single transaction,” said Ambani, chairman, Reliance group. He added the deal would reduce the firm’s annual interest cost to Rs 8 billion, from the earlier Rs 26 billion.

RInfra would be a zero-debt company next year and it would also aim at a top-end credit rating, he added.

The deal covers its integrated business of generation, transmission, and retail electricity distribution - power transmission network across Mumbai and Maharashtra and the retail distribution network in Mumbai’s suburbs. The two companies first agreed to the deal last December. 

Based on details earlier shared by the company, the Rs 188-billion comprises the business valued at Rs 121 billion regulatory assets approved so far of the Rs 11.5 billion, another Rs 50 billion regulatory assets under approval, and Rs 5.5 billion on account of net working capital. 

Ambani claimed this was the largest-ever debt reduction in the infrastructure sector. Things are in place for a rights issue and a qualified institutional placement, in addition, if required, he said.

On a debt resolution plan for Reliance Naval and Engineering, Ambani added: “We are in discussion with lenders and have given resolution offers. A vast majority of the lenders are supportive and we will have to wait for the outcome of the lenders’ meet, to decide how that will proceed.” Reliance Naval is a subsidiary of RInfra. 

At the group level, Ambani added, individual prospects of each company looked optimistic. “The bulk of the debt was in RInfra and Reliance Communications, which is being resolved or has been resolved.”

The Adani deal was crucial for the company since in a statement last week to the BSE, it said it had missed the payments deadline for non-convertible debentures worth Rs 1.33 billion. These payments will now be made from the proceeds of the Mumbai distribution business sale.

Ambani said Rs 60 billion worth of arbitration awards, which they have already won and over Rs 50 billion of cash inflow from past regulatory assets related to the Mumbai distribution business, will flow back to RInfra and not Adani Transmission. This would further help it come out of debt. Regulatory asset is the amount which can be recovered in tariff hike from consumers for past expenditure.

He sees a further cushion available to reach his zero-debt target through Rs 80 billion worth of arbitration, where the outcome is yet to be decided. The company, Ambani said, does not need to look at any further monetisation of assets. 

Among the current assets listed of RInfra are the Delhi power distribution business, the company’s 12 road projects, the Mumbai Metro rail, the defence, and engineering & construction businesses. 

On prospects in the power business, through its shareholding in listed entity Reliance Power (RPower), the chairman said: “RPower is one of the strongest companies in the sector, with a debt-to-equity ratio of 1.4:1, a unique distinction.” On inorganic growth, he said if there was anything value-accretive, the company would look at it.

On the Mumbai Metro business, he said he foresaw profitability rising exponentially with an increase in riders. The segment has been a loss-making one and the company has an ongoing case at the Bombay High Court for a higher tariff rate. Ambani answered in the affirmative to queries on whether the Mumbai Metro rail project would see profitability in the next three years. 

Adani Transmission said the acquired assets would be housed in a separate and newly created subsidiary named Adani Electricity Mumbai.