RIL's asset monetisation likely to pare Rs 1 trillion of total debt

Reliance Industries (RIL) said last week that it plans to go for asset mo­n­e­tisation and see higher earn­i­ngs as well as lower capital expenditure.
 
Analysts are of the opinion that the asset monetisation could alone help shave off 33 per cent or Rs 1 trillion of its total debt.
 
The oil-to-telecom conglomerate, as of December 2018, had an outstanding debt of Rs 2.74 trillion, higher from the Rs 2.18 trillion as on March 2018. RIL expects liabilities to taper down eventually. “It is likely that RIL has lined up strategic buyers for eventual monetisation and a sale would lead to 33 per cent dip in debt with over Rs 1 trillion locked up in these assets,” analysts with Edelweiss wrote in a post results note on RIL.
 
RIL started the process to demerge its towers and fibre businesses into separate subsidiaries in a bid to monetise these assets. “It has hived off these assets into separate subsidiaries which it will look to monetise in the coming months, possibly through the Infrastructure Investment Trusts (InvITs),” analysts with HSBC Global Research wrote in their note on the company.
 
Reliance Jio Infocomm (RJIL) proposes to transfer its fibre and tower undertakings to separate companies through a scheme of arrangement. The subsidiary will also enter into arrangements for long-term uninterrupted use of these assets. RIL, in its media release, also added that the composite scheme of arrangement for the purpose has been filed in the Ahmedabad bench of the National Company Law Tribunal (NCLT) on January 7.
 
“RIL intends to monetise these assets into an annuity-based model that offers long-term visibility to potential investors,” analysts with Bank of Baroda wrote in a January 18 report. On Thursday, at the company’s earnings press conference, V Srikanth, joint chief financial officer, said, “Capex intensity will go down, which is clear. Earnings momentum is strong and asset monetisation opportunities mean that the liabilities side of the balance sheet will look stronger.”
 
Most of RIL’s outstanding debt is an outcome of the company’s aggressive expansion plans seen in the last six to seven years. According to company officials, RIL invested about $20 billion in its refining and petrochemicals business, Rs 3 trillion in telecom and an addition $2 billion in the retail business. Company officials are confident that capital expenditure needs will start to decline.
 
Analysts with HSBC see this as a positive, as concerns over higher leverage may recede. “Asset monetisation plans, coupled with strong free cash flow, should address investor concerns on RIL’s leverage,” the report said, adding, this should drive a swift deleveraging cycle from the next financial year.