Rights issue, Aramco deal could make RIL debt-free 3 months before target

Mukesh Ambani could well be on his way to transforming Reliance Industries (RIL) into a debt-free company by December this year. This is three months earlier than what he had publicly told shareholders, according to sources close to the company.  

In just six weeks, while most other companies were battling the coronavirus (Covid-19) outbreak, RIL raised a staggering Rs 1.05 trillion through stake sale in its 100 per cent subsidiary Jio Platforms (JPL) and via a rights issue in RIL, which was over subscribed by 1.59 times.  

RIL raised Rs 92,203 crore from over seven investors, which include marquee players like Facebook for a 19.9 per cent stake in Jio Platforms, which controls Reliance Jio as well as various digital platforms. It also raised Rs 53,125 crore though the rights issue where shareholders have paid only 25 per cent of the money upfront. The remaining amount will be paid in tranches in one to one and a half years. That is not all – Reliance also received Rs 7,000 crore by selling 49 per cent stake in its petro retail business to BP.

Sources close to the company said that based on its last year’s cash generation, RIL is expected to generate cash profits of over Rs 53,000 crore by the end of December (for a nine-month period), making it a debt-free company by December itself. RIL, however, declined to comment on the issue.

 

However, critics said it will be difficult for Reliance to reach last year’s levels of cash profits, primarily because the refining business as well as demand for petrochemicals has seen a fall due to the Covid-19 outbreak.

As a result, there may be some delay in reaching debt-free status. Those close to the company said that in the worst case scenario, it may reach the cash profit number in March (as was targeted) and not December. But the target will be reached.

Also, the sources said that due diligence is on by Saudi Arabian oil giant Aramaco to pick up a 20 per cent stake in the oil-to-chemicals business of RIL for $15 billion (Rs 1.18 trillion). There is every chance that the debt-free status could come even earlier, if this deal is done within December.  

With over Rs 1.58 trillion of cash to be generated through a combination of Aramaco sale (if the deal fructifies but many critics are not sure) as well as from the remaining portion of the rights issue (75 per cent, which shareholders have to pay), RIL will be sitting on a large surplus of cash which can be used during its next phase of growth without going for debt.

It will need money for buying 5G spectrum, further expansion of its network and for a big push in fixed broadband. Size of its cash is about half of what RIL has invested till date – of around Rs 3 trillion in telecom. It also needs to invest as it makes aggressive moves in the e-retail space where it is taking on giants like Amazon and Walmart’s Flipkart in a three-pronged race to woo consumers. And the icing on the cake is in Reliance Retail, which has been valued by varying analysts at around Rs 3.5 trillion. Here, investors can be brought in with fresh issuance of equity just like in JPL to raise funds.