RIL says core business has got 'demand-side shock' due to coronavirus

The company listed the pandemic as internal risks in its letter of offer for its upcoming rights issue.

Reliance Industries (RIL) said on Monday that its core business was hit significantly by demand-related challenges, both in India and overseas. The company listed Covid-19 as an ‘internal risk’ in its letter of offer for the proposed rights issue.
 

“The impact of Covid-19 on our business and operations is uncertain,” the firm said. “Our refining, petrochemical, as well as oil and gas businesses have received a demand-side shock — not just in India but across the world,” the letter stated.
 

It added: “The lockdown is expected to have an adverse effect in the short-to-medium term on several businesses including refining, petrochemical, and oil and gas, as well as retail (non-grocery).”

Referring to the pandemic and its impact on proposed strategic transactions, the company, in its offer letter, said: “The impact of Covid-19 on our business will depend on a range of factors, which we are not able to accurately predict… These factors include… an adverse impact on our ability to engage in new, or consummate pending, strategic transactions on — agreed terms and timetable or at all.”
 

Over the past month, RIL has announced three different deals for Jio Platforms — Facebook agreed to invest Rs 43,574 crore for a 9.99 per cent stake, Vista Equity Partners will infuse Rs 11,367 crore for a 2.32 per cent equity stake, and private equity firm Silver Lake will pick up 1.15 per cent stake for Rs 5,656 crore. Further, RIL said on Sunday that General Atlantic would also invest close to Rs 6,598 crore in the digital business.

On its proposed stake sale in its oil-to-chemicals (O2C) division, it stated that the firm was exploring various opportunities to bring in strategic or other investors, saying that “to facilitate such investments, it is proposed to transfer the O2C business into a separate wholly-owned subsidiary of our firm.”

According to RIL, implementation of this scheme is delayed; it could potentially affect monetisation plans. As of end-March, RIL’s total borrowings amounted to Rs 3.36 trillion on a consolidated basis.

In August, RIL announced that it sought to sell 20 per cent stake in its O2C division to Saudi Aramco — a deal pegged at $15 billion. The letter does not mention the proposed deal with Aramco. So far, RIL has determined the impact of Covid-19 in its financial statements, in which it has disclosed it as an ‘exceptional item’ of Rs 4,245 crore, and at Rs 899 crore net of taxes — in the profit and loss statement for FY20. The company added there has been a substantial drop in oil prices, accompanied with an unprecedented demand destruction.

Commenting on RIL’s retail business, the letter stated that the outbreak had dented Reliance Retail’s business heavily, given the restriction on movement.
 

“This has led to a lower footfall in Reliance Retail’s physical marketplace, as well as reduced demand for its online deliveries,” it said.