Deals with Aramco, BP to play big role
MUMBAI: At a time when unsustainable debt is creating new pain points for the corporate India, Mukesh Ambani’s Reliance Industries Ltd (RIL) is busy preparing plans to make the India’s most reputed industrial conglomerate a zero-net-debt entity in the next 18 months.
The group that carries a net debt of Rs1.54 trillion ($22 billion) at the end of March 31, has lined up ambitious plans like selling 20 per cent of Reliance’s oil and chemicals business to Saudi’s Aramco, forging a joint venture with BP Plc this month, under which the European oil major would buy 49 per cent of the Indian firm’s petroleum retailing business for about Rs70 billion, and listing the group’s retail and telecommunications businesses within a couple of years.
Addressing the shareholders in Mumbai on Monday, Mukesh said the group that has racked up $76 billion in capital expenditure in the last five years aims to be a zero-net-debt company in 18 months.
“Aiding that effort would be a decision to sell 20 per cent of Reliance’s oil-to-chemicals business to Saudi Arabia’s largest industrial entity, Saudi Arabian Oil Company or Aramco, at an enterprise value computed at $75 billion,” Mukesh said.
He also said the company will start preparing to list its retail and telecommunications units within five years.
The group is cleaning up the group finances following years of spending on the wireless carrier, whose entry in 2016 with free calls and cheap data revolutionised the industry and spearheaded a consolidation in the industry.
The almost $50 billion ploughed into the phone venture, mostly in debt, has raised concerns among analysts including at Credit Suisse Group AG that Reliance’s ballooning borrowings would weigh on growth.
“With these initiatives, I have no doubt that your company will have one of the strongest balance sheets in the world,” Ambani told his shareholders. “We will also evaluate value unlocking options for our real estate and financial investments.”
Reliance had a net debt of Rs1.54 trillion ($22 billion) at the end of March 31, according to Ambani. His plan to carry zero debt would mean the borrowings would fall below the company’s cash reserves, a level not seen since 2013.
Last week, Credit Suisse cut its recommendation for Reliance’s stock and the price target citing reasons including rising liabilities and finance costs. Shares of the company have slumped about 18 per cent from a record reached on May 3, compared with a 3.6 per cent decline in the benchmark S&P BSE Sensex.
Reliance’s debt is backed by “extremely valuable assets,” Ambani said, signalling that his group isn’t prone to the kind of troubles that have been plaguing many other corporate borrowers in India.
Apart from the Aramco deal, Reliance also announced a joint venture with BP Plc this month, under which the European oil major would buy 49 per cent of the Indian firm’s petroleum retailing business. Reliance would receive about Rs70 billion under this deal.
The “commitments” from the Aramco and BP deals alone are worth about Rs1.1 trillion,” Ambani said, adding that Reliance will induct “leading global partners” in telecom and retail units in the next few quarters.