RIL a net debt-free firm now, will rope in investors in retail biz: Ambani

As on March 2020, RIL had a net debt of Rs 1.61 trn and managed to turn itself net debt-free after raising Rs 1.68 trn via a 24.7% stake sale in Jio Platforms, and its rights issue

Reliance Industries (RIL) has turned net debt-free ahead of its March 2021 deadline and will rope in investors in its consumer and retail businesses in next few quarters, chairman Mukesh Ambani announced today.

As on March 2020, Reliance had a net debt of Rs 1.61 trillion and the company managed to turn itself net debt-free after raising Rs 1.68 trillion via a 24.7 per cent stake sale in Jio Platforms and its rights issue.

During the past two months Jio Platforms, the company's digital services subsidiary, has raised Rs 1.15 trillion offering 24.7 per cent stake to a clutch of global investors including Facebook, marquee private equity firms, and sovereign wealth funds from Saudi Arabia and the UAE.

The company has included the entire proceeds of the Rs 53,124-crore rights issue, the largest share offering in the country, in its calculation. However, it has received only 25 per cent of the issue proceeds (Rs 13,281 crore) in the current fiscal and the remaining 75 per cent will come in FY22.

When asked about actual fund infusion, an RIL executive said the company has signed definitive agreements for stake sale in Jio Platforms and shareholders have committed to subscribe to the rights issue. Fund infusion will happen after required approvals and as per time lines, he added.

Along with the proposed stake sale in petro-retail joint venture to BP, the total fund raise will be in excess of Rs 1.75 trillion, the company said. 
 

An IPO of retail business and Jio is planned in five years, it added.

As on March 2020, the company had a gross debt of Rs 3.36 trillion and cash and cash equivalents of Rs 1.75 trillion.

"Exceeding the expectations of our shareholders and all other stakeholders, again and yet again, is in the very DNA of Reliance. Therefore, on the proud occasion of becoming a net debt-free company, I wish to assure them that Reliance in its golden decade will set even more ambitious growth goals, and achieve them," Ambani said in a statement.

But the fund raising in last two months does give it leg room to execute and plan new ventures.

"Reliance turning net debt free ahead of schedule is a positive catalyst and will help sustain valuation. The Rs 1.68 trillion fund raising gives the company ability to invest and experiment in new business categories. No other Indian corporate is so well placed to tap new opportunities," said Rajiv Sharma, head of research, SBICAP Securities.

RIL's current debt is a result of its massive capital expenditure plan between 2012 and 2018, which included investments in the telecom and digital business and a $16 billion investment in the core petrochemicals business.

Last August, Ambani had told shareholders that RIL would be a zero net debt company before March 2021. Back then, based on the list of divestments the company listed, RIL's proposed deal to sell a 20 per cent stake in its oil to chemicals division (O2C) was crucial to realise its plan. A delay in signing a definitive agreement with Saudi Aramco and later due to the COVID-19 hit on oil business across the globe and India, doubts were raised on RIL's ambitious debt reduction plan. The shift in focus from sale of the O2C business stake to partial divestment of stake in Jio Platforms, has now resulted in RIL meeting its targets several months ahead of schedule. RIL's surprise move to raise funds through a rights issue has also helped meet the debt reduction target.

Analysts peg the net debt figure higher

However, some analysts estimate RIL’s net debt at a higher figure compared to the reported Rs 1.61 trillion as on March 2020. Kotak Institutional Equities pegs the effective net debt at Rs 2.49 trillion after including capex creditors, deferred payment liabilities and other financial liabilities. Likewise, IIFL pegs it at Rs 2.38 trillion, Bernstein at Rs 2.61 trillion and CLSA at Rs 1.88 trillion. The estimates of Edelweiss Securities, in fact, are significantly higher.

Edelweiss analysts led by Jal Irani, in a report last month, said that the adjusted net debt (after including non-convertible debentures extended to tower/fibre InvIT, creditor capex and spectrum liability) stood at Rs 3.2 trillion. According to the brokerage, RIL will need to tap into its massive divestment pipeline of oil-to-chemicals assets (Rs 1 trillion-plus) and fibre InvIT (Rs 1.2 trillion) to repay the debt. Progress on this front would, therefore, continue to allay market concerns around leverage, they said.