RIL dips into MF kitty, may retire debt

Shifts Rs 10k-15k cr from duration to liquid funds

Reliance Industries (RIL), the country's largest private sector company, has moved Rs 10,000-15,000 crore in the past few days from duration schemes to liquid schemes of mutual funds. Duration schemes are medium-term mutual fund schemes that provide good returns in a falling interest rate regime. Liquid schemes, on the other hand, are almost cash equivalent.

"Reliance Industries, the biggest investor in the mutual fund industry, has been aggressively shifting money from medium-term debt funds to near-cash liquid schemes in the past few days," said the chief executive of a fund house.

At the end of 2014-15, RIL held Rs 43,005 crore in mutual fund debt schemes and other paper. RIL's large withdrawals have sparked speculation ranging from an acquisition or fresh investment in Reliance Jio to positioning itself for an interest rate hike in the US on December 16. Many players believe the Indian markets will face withdrawals by foreign institutional investors after a US rate rise. When contacted, an RIL spokesperson declined to comment.

"RIL is in complete control of its capex spending, and its actions are measured. RIL is possibly looking to drop the liquidity buffer and use the cash to repay contractual debt that falls due in 2016, as well as fund the balance capex," an analyst with a foreign investment bank said.

At the RIL's annual general meeting in June, chairman Mukesh Ambani had said, "The full benefits of this entire investment cycle will be realised from the year 2016-17 onwards. We will have a unique portfolio of globally competitive petrochemical and refining business with a new age India-centric consumer business, with very high growth potential. This will place Reliance in a select group of most valuable companies in the world."

RIL has invested close to Rs 2,00,000 crore over the past few years to build new businesses and improve efficiency in existing ones. RIL had undertaken a massive $32 billion capital expenditure a few years ago to set up infrastructure for its 4G telecom services, Reliance Jio, and to expand its oil refining and petrochemicals business. Nearly Rs 1,00,000 crore has been invested in Reliance Jio. Over the next few months, Reliance Jio will need to spend on spectrum but other than that its big spending is largely over.

Bank of America Merrill Lynch said in a note dated December 3: "RIL is about to complete a $33-billion capex plan. The $17 billion spent on petchem should start generating returns as plants progressively commission through 2016. Even as low crude dents returns, these investments should be profitable. Outside of a telecom capex blowout, higher core free cash flows should help reduce debt, adding to equity value."