Zero-debt plan of RIL may hit legal roadblock as HC asks to disclose assets

Delhi HC order in PMT arbitration matter could delay stake sale to Aramco

Reliance Industries’ (RIL’s) plans to become a zero net-debt company by March 2021 could be in jeopardy after the Delhi High Court on Friday ordered the oil-to-telecom conglomerate to disclose its assets.

The court’s ruling came after the government cited non-payment of an international arbitral award to the tune of $4.5 billion in the Panna-Mukta and Tapti (PMT) production-sharing contracts. The development means the company will have to list all its assets before sealing the 20 per cent stake sale to Saudi Aramco. The stake sale in the refining and petrochemical business was valued at $15 billion.

The conglomerate had an outstanding debt of Rs 2.9 trillion as of September 2019. 

While an RIL spokesperson did not respond to calls from Business Standard, Saudi Aramco did not respond to emailed questions. A petroleum ministry spokesperson also did not comment. 

“In the event of the deal with Saudi Aramco failing, there will definitely be a negative impact on RIL’s plan to turn net debt-free and meet the set timeline for it. However, it looks unlikely the government will disrupt the $15 billion worth of foreign inflow into the country in the present economic scenario,” said an industry expert, who did not wish to be identified.

He further added the stake sale was not “strategic” in nature, did not give any special rights, and “should not be a concern for the government”.

Besides the Aramco deal, RIL has taken in BP as a 49 per cent partner in fuel retailing, which is expected to contribute another Rs 7,000 crore towards debt reduction.

It was in December 2010 that the then BG Exploration & Production India (now Shell) and RIL had initiated an arbitration against the government claims over a share in profit and royalty from the PMT oil and gas fields. Though the companies had to pay $3.8 billion, with interest, it has become $4.5 billion now. 

On Friday, the joint venture partners announced handing over the Panna-Mukta fields back to the government nominee, Oil & Natural Gas Corporation (ONGC), after 25 years of operations.

In a November 14 rating note on RIL, Moody’s had said it expected RIL's adjusted net debt/Ebitda would stay stable at 2.8 times by March 2020 compared to 2.9 times for March 2019 under the base case scenario, which did not incorporate debt reduction from any of the planned asset sales. This was below Moody's downgrade threshold of 3.0 times. However, a timely implementation of planned assets sales and reduction in its net borrowings, Moody’s said, could help upgrade RIL's ratings.

As part of the debt-reduction plan, the company also plans to find global partners for its retail and telecom businesses and unlock value in real estate and financial investments, RIL said in August.

Facing heat: RIL’s debt woes
 

Rs 2.91 trillion: Consolidated debt           
Rs 1.57 trillion: Net Debt
 

Recent announcements on debt reduction, divestment
 

6 August: BP, RIL to form fuel retail joint venture 
12 August: Partial stake sale in oil-to-chemicals division to Saudi Aramco
Plans to be net debt-free in 18 months
25 October: Plans to make Jio debt-free

 
 
RIL first announced plans to sell its stake in the oil-to-chemicals division at its annual general meeting in August. On August 12, the company said it has signed a letter of intent with Saudi Aramco for a proposed investment in the division for a 20 per cent stake. At the same event, Mukesh Ambani, chairman and managing director of the company, said RIL planned to turn debt-free in the next 18 months. 

The PMT JV has ONGC, RIL and BG Exploration & Production India, each holding 40 per cent, 30 per cent, and 30 per cent participating interest, respectively. The production sharing contracts (PSC) for the PMT fields, which were executed by the PMT JV with the Government of India in 1994, expired on Saturday.

The Tapti fields had ceased production in 2016 and the Tapti process platform facilities were handed over to ONGC. Decommissioning and site restoration of the residual Tapti facilities, including five unmanned platforms and in-field pipelines, are currently being carried out by the PMT JV under the country’s first offshore decommissioning and site restoration project. The Tapti decommissioning and other commercial activities will continue in BGEPIL even after Panna-Mukta’s handover. The PMT fields were the first fields in India to be operated under a joint operatorship model.