Reliance Industries Confident of Reaching Zero Net Debt Goal by December

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

This is ahead of the March 2021 deadline that Ambani had set in 2019. While RIL’s Aramco deal was previously expected to help achieve this goal, a surprise rights issue and a divestment in Jio Platforms might do the trick instead.

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

“With the rights issue, the FB deal and, most likely, another strategic investment in Jio Platforms, the reliance on the Aramco deal is now significantly reduced with respect to debt reduction” , said Nitin Tiwari, Vice President, Antique Stock Broking.

ALSO READ: CCI approves proposed acquisition of 49% of Reliance BP Mobility by BP Global

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

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

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

In August last year, the group’s chairman and chief executive, Mukesh Ambani, told shareholders that RIL would be a zero net debt company by March 2021.

ALSO READ: Reliance Jio announces 127% increase in pre-tax profit to Rs 2,931 crore in fourth quarter

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

In August, RIL announced that it was looking to sell 20% of its petroleum-chemicals (O2C) division to Saudi Aramco for around $15 billion. The two companies have yet to sign a definitive agreement, leaving room for valuation changes, analysts say.

Antique’s Tiwari said: “The deal with Saudi Aramco is on track, with due diligence underway. Although we have no reason, at this time, to believe otherwise, but nonetheless we are living in rather unprecedented times for the crude and oil markets, so the initially frozen deal valuations could be reconsidered, taking into account the new dynamics of oil.

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

ALSO READ: RIL aims to raise Rs 53,125 crore on India’s biggest rights issue

On Friday, RIL also informed the exchanges that the board of directors 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 the transfer of the O2C business to Reliance O2C as a going concern on the basis of a down sale for a lump sum consideration.

The Company’s O2C business includes the entire petroleum-chemical business including refining, petrochemical, retail fuel and aviation fuel (controlling interest only) and wholesale marketing business in bulk, as well as its assets and liabilities.

Reliance O2C is a wholly owned subsidiary of RIL. The turnover of the O2C business, RIL said, for the nine months ended December 31, 2019, was Rs 2.71 trillion, which is equivalent to 99.36% of RIL’s turnover for the same period. This move will help RIL divest its stake to Aramco.

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