Reliance soars on stake sale plan to cut debt


  • Corporate News
  • Wednesday, 14 Aug 2019

The conglomerate aims to be a zero-net-debt company in 18 months, Asia’s richest man told shareholders on Monday. Aiding that effort would be a proposed sale of 20% of Reliance’s oil-to-chemicals business to Saudi Arabian Oil Co at an enterprise value of US$75bil.

MUMBAI: Reliance Industries Ltd soared the most in more than two years after billionaire Mukesh Ambani revealed a plan to sell a stake to Aramco as part of efforts to pare debt that piled after racking up US$76bil in capital expenditure in the last five years.

The conglomerate aims to be a zero-net-debt company in 18 months, Asia’s richest man told shareholders on Monday. Aiding that effort would be a proposed sale of 20% of Reliance’s oil-to-chemicals business to Saudi Arabian Oil Co at an enterprise value of US$75bil.

The company would also start preparing to list its retail and telecommunications units within five years, Ambani said.

Shares of Reliance jumped as much as 8.8% in Mumbai yesterday, the biggest intraday gain since Feb 22, 2017.

The tycoon is cleaning up the group’s finances following years of spending on his wireless carrier, whose entry in 2016 with free calls and cheap data upended the industry and spurred a consolidation.

The US$50bil plowed into the phone venture, mostly in debt, has raised concerns among analysts including at Credit Suisse Group AG that Reliance’s ballooning borrowings could weigh on growth. Ambani sought to allay those fears.

“With these initiatives, I have no doubt that your company will have one of the strongest balance sheets in the world, ” he said. “We will also evaluate value unlocking options for our real estate and financial investments.”

The Aramco deal should be completed by March and is subject to due diligence, definitive agreements and regulatory and other approvals, Ambani said. He didn’t say how the deal would be structured.

Saudi Aramco and Reliance have agreed to a non-binding Letter of Intent regarding a proposed investment in the Indian company’s oil-to-chemicals division comprising the refining, petrochemicals and fuels marketing businesses, according to a statement from Reliance on Monday.

Signalling an end to the spending cycle at Reliance Jio Infocomm Ltd, Ambani is setting a new growth path for his group, whose bread-and-butter business has been oil refining and petrochemicals. The company is building an e-commerce platform by leveraging its phone network and Reliance Retail Ltd to eventually take on Amazon.com Inc and Walmart Inc.

“This is a unique business model we are building in partnership with millions of small merchants” and mom-and-pop stores, he said. As part of the plan, Reliance has been forming partnerships and acquiring technology assets.

This month, Reliance announced plans for a joint venture with Tiffany & Co to open stores for the jeweller in India, and in May paid US$82mil for the British toy-store chain Hamleys.

The new businesses are likely to contribute 50% of Reliance’s earnings in a few years, from about 32%, Ambani said.

While the spending on Jio has helped Reliance lure almost 350 million users in the world’s second-biggest mobile market, the growth has come at a price.

Reliance had a net debt of 1.54 trillion rupees (US$22bil) 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. — Bloomberg

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