India’s largest stock-market listed company Reliance Industries Limited (RIL) will be free of debt by March 2012, its chairman Mukesh D Ambani said on Friday as he listed out an array of new investment plans in front-end consumer businesses spanning across retail and telecom broadband space.
“With a cash balance of Rs42,393 crore, our company is in a very strong position financially. Reliance will be completely debt free, net of cash balances within this year,” Ambani said at the company’s annual shareholder meeting.
The cash balance of Rs42,393 crore ($9.5 billion) and expected proceeds of Rs32,300 crore ($7.2 billion) from BP Plc will help the firm wipe out its outstanding debt of Rs67,397 crore and still leave robust enough resources on the balance sheet to fund its expansion plans. Ambani said RIL, whose total enterprise valuation stands at $75 billion (about Rs3,37,500 crore), will gradually evolve into a more simplified corporate structure.
“With reference to the cross-holding in various group companies, we will look at simplifying the corporate structure,” said Ambani. There were, however, no immediate plans to list any of the company’s subsidiaries.
A debt-free balance sheet also did not imply that the firm, which has a turnover of more than Rs2,50,000 crore ($58 billion), will not raise any loans in the future to fund its investments.
“We will continuously look at the debt market,” Ambani said.
Ambani’s remarks did not enthuse the stock markets and experts said that share prices will move once there is a clear road map on how the company plans to arrest the decline in gas production in the Krishna Godavari (KG) D6 field.
RIL’s share prices rose by 1.8% in the initial trading hours in anticipation of some big-bang announcements, but fell by 1.6% to close the day at Rs936.
There were no unanimity among experts on whether it was more prudent for the company to retire outstanding debt using the cash balances or set these aside for future investments.
Some experts said given the current high interest rate environment, it makes sense to pay off the debt.
“Under the current environment, it does not make sense to carry debt and hold cash at the same time,” said Aseem Dhru, CEO, HDFC
“There are no immediate big investment plans for the company and the existing ones do not need a significant amount.”
Others were of the view that the company should set aside cash for pump-priming future expansion and diversification plans.
“The company would keep the cash with itself for future opportunities. Such a big company would keep around Rs 20,000 to 30,000 crore cash,” said SP Tulsian, an independent analyst.
As of now out of the total cash of over Rs42,000 crore the company has R15,000 crore as treasury investment and Rs27,000 crore as cash, Tulsian said.