Aug 2019, Reliance industries chair announced his desire to achieve the target that he had once achieved in 2012 of being a zero net debt company by Mar 2021 i.e., having cash & cash equivalents balance out the gross debt. This was initiated by the proposed acquisition by Saudi Aramco of 20% stake in the refining & petrochem business for ?114,000Cr. The net debt of the company as per 4Q FY2019-20 stood at ?161,035Cr & hence the Saudi Aramco business would clear off 70.79% of the targeted zero net debt.
Now comes twist in the tale, the current pandemic augmented economic recession brought down the crude by 64.52% since August 2019, throwing a cloud of uncertainty over the deal in terms of its valuation &/or its timeline. But one thing that makes any good business great is a strategic backup/s, this is what RIL is all about.
From textile to oil & now data, RIL has never failed to seize the opportunity. With investments totaling to ?78,562Cr for 17.12% stake in Jio from Facebook(9.9%), Silver Lake Funds(1.15%), Vista Equity Partners (2.32%), General Atlantic Partners(1.34%) & recently KKR (2.32%), at a time when market uncertainties reign supreme, shows the investors confidence in RILs vision & return potential.
The thought that would come next is, What about the remaining ?82,473Cr?
- 1:15 rights issue for ?53,125 Cr i.e., for every 15 equity shares the holder is allowed to apply for 1 at a 14% discount on the closing price as of April 30 (the announcement date).This mode is preferred in this scenario as being a mode of capital influx from present shareholders it can incentivize them with a higher discount than an FPO. This would raise ?53,125 Cr for the company, further reducing the required net debt to ?29,348 Cr, but only by November of 2021 as the proceeds would be disbursed in a 1:1:2 ratio on application, on June 2021 & November 2021 respectively.
- A JV with British Petroleum for fuel retail for ?7,000 Cr.
- Tower deal with Brookfield for ?25,125 Cr for units issued by the Tower Infrastructure Trust. The largest FDI in Indian Infrastructure. Though a certain deal from both ends, the structure of the same i.e., the layers of entities in Singapore & Bermuda has raised flags on its transparency & hence has led it to an increased period of regulatory review & the delay in approvals from the DoT & MHA. But the industry specialists are hopeful of the deal to come through.
All this would leave RIL with a zero net debt & change even without the Aramco deal, but then again while the motive in-focus is the zero net debt, the primary lies in achieving the opportunity to strategically transition into becoming the fastest growing consumer company in the digital space. This can be seen from the recent launch of JioMart, made available via Facebooks WhatsApp, thereby leveraging its 400 million user base. At a time when the social distancing orders have raised the need for small kiranas over large spaced supermarkets, JioMart is a very lucrative business model, providing a launchpad for the small players in the big ecommerce game.
Carpe Diem, words to live by, especially for Indias richest man, Mukesh Ambani.
Sidharth Moorthy
Views are personal and may not reflect Qrius Editorial Policy