The Real Impact Of Ambani’s Mammoth Fundraise On RIL’s Balance Sheet
Rights issue proceeds will fully flow in by November next year.
Reliance Industries Ltd. has sold stake worth more than $15 billion in its digital and telecom unit and raised funds from shareholders, keeping Mukesh Ambani’s promise of making the telecom-to-energy company debt-free this year. At least, technically. Its actual impact on the balance sheet, however, will be visible by next fiscal.
The fundraising blitz came about after RIL completed its capex on its telecom infrastructure and upgrading its refinery, the biggest in the world. Reliance had a gross debt of Rs 3.36 lakh crore at the end of March, rising Rs 48,789 crore in the last one year. Net debt stood at 1.61 lakh crore.
Reliance on Friday said it has become zero net debt company, ahead of the March 2021 deadline Ambani promised. That came after 11 agreements to sell 24.7% in Jio Platform Ltd., the holding unit of telecom and digital assets, for about Rs 1.16 lakh crore and a rights issue worth Rs 53,124 crore.
The sale of stake in Jio Platforms are binding pacts with high-profile investors, including Facebook Inc and sovereign and private equity funds. The money will, however, flow in after regulatory approvals.
Assuming all stake sales get approval soon, the company’s balance sheet will turn completely net debt-free only by next year when it receives the full proceeds of the rights issue. So far, RIL has only received Rs 13,281 crore, or 25% of the proceeds, for the partly paid shares. The remaining Rs 39,000 crore, equivalent of a quarter of the current net debt, will come in two instalments in May and November 2021.
Morgan Stanley, in its latest report, estimates about $22 billion to come in the next nine months from completion of stake sale in Jio Platforms, 50% sale in retail fuel stations to BP, and final approvals to sale of tower investment trust to Brookfield. That will help pare net debt by half by March 2021.
Morgan Stanley also expects Reliance to get proceeds of sale of 20% in oil to chemicals business to Saudi Aramco and the remaining rights issue proceeds next fiscal. That will reduce net debt to zero in the next financial year 2021-22.
The other way the balance sheet would become net debt free earlier is if cash flows improve.
While the company’s cash and cash equivalents rose Rs 42,232 crore to about Rs 1.75 lakh crore as of March, it still ended the year with negative cash flow because of high capex. The cash flow is, however, expected to improve as investment in subsidiaries will fall significantly in 2020-21 and 2021-22.
Morgan Stanley expects positive free cash flow from a steady energy business and slowing investments to be around Rs 18,800 crore in 2020-21.
Even after using funds raised through asset sales and rights issue, Reliance still has more debt.
The oil-to-retail company in 2018-19 transferred liabilities worth Rs 1.07 lakh crore to the two InvITs. Along with preference shares, the total debt of the infrastructure trusts is Rs 1.85 lakh crore. The process is yet to be completed.
Apart from that, it has to pay creditors Rs 49,530 crore ($6.5 billion) for the capital expenditure and Rs 19,000 crore worth of spectrum liabilities. These are not classified as typical borrowings.