Reliance Industries confident of hitting zero net debt target by December

Focus shifts from Aramco to Jio Platforms deal to achieve the goal ahead of the March 2021 deadline

Mukesh Ambani-promoted Reliance Industries (RIL) has said it is confident of achieving its target of zero net debt in the current calendar year.
 

This is ahead of the March 2021 deadline Ambani had set in 2019. While the earlier expectation was that RIL’s Aramco deal will help meet this target, a surprise rights issue and divestment in Jio Platforms may do the trick instead.
 

On Thursday, RIL did not give a timeline for the Aramco deal. But it said it was in good shape to announce a Facebook (FB) investment size deal in the coming months (for Jio Platforms).
 

“With the rights Issue, the FB deal and, most likely, another strategic investment in Jio Platforms, dependence on the Aramco deal is now considerably lower as far as debt reduction goes,” said Nitin Tiwari, vice-president, Antique Stock Broking.

Last week RIL announced that Facebook would invest Rs 43,574 crore in Jio Platforms for a 9.99 per cent stake in this wholly-owned subsidiary.
 

This week, RIL said it would raise Rs 53,125 crore through a rights issue. On Thursday, the management indicated another stake sale in Jio Platforms of the same size.
 

In its statement, the management said it expected to raise Rs 1.04 trillion by June this year. The Rs 1.04 trillion includes proceeds from the rights issue, the FB investment, and the previously announced investment from BP in its retail business for Rs 7,000 crore.

In August last year, group Chairman and Managing Director Mukesh Ambani told shareholders that RIL would be a zero net debt company before March 2021.

As of March 2020, RIL’s gross debt was Rs 3.36, trillion, and after deducting the cash and cash equivalents, net debt stood at Rs 1.61 trillion. Both debt figures have risen over the same period last year. With Rs 1.04 trillion cash proceeds likely by June, RIL will be short of another Rs 56,000 crore to meet the net debt target at the current level.
 

In August, RIL announced it was looking to sell 20 per cent in its oil-to-chemicals (O2C) division to Saudi Aramco for around $15 billion.  The two companies are yet to sign a definite agreement, leaving scope for changes in valuation, analysts opine.
 

Tiwari from Antique said, “The deal with Saudi Aramco is on track, with due-diligence going on. While we don't have a reason, as of now, to believe otherwise, but nevertheless these are rather unprecedented times for crude and petroleum markets, so valuations of the deal initially frozen could be rescrutinised, considering oil's new dynamics.”
 

The analyst also pointed out the cash flow from transaction could be staggered over time, as Saudi Aramco’s cash flow could also be under pressure.

On Friday, RIL also informed the exchanges that the board had approved a Scheme of Arrangement between the company and its shareholders and creditors and Reliance O2C and its shareholders and creditors. The scheme allows for transfer of the O2C undertaking to Reliance O2C as a going concern on slump sale basis for a lump sum consideration.
 

The O2C undertaking of the company comprises entire oil-to-chemicals business consisting of refining, petrochemicals, fuel retail and aviation fuel (majority interest only) and bulk wholesale marketing businesses together with its assets and liabilities.
 

Reliance O2C is a wholly owned subsidiary of RIL. The turnover of O2C undertaking, RIL said, for the nine months ended December 31, 2019, was Rs 2.71 trillion, which is equal to 99.36 per cent of the turnover of RIL for the same period. The move will help RIL divest its stake to Aramco.