Reliance shares soar as company moves to trim debt
Reliance Industries Ltd. soared the most in more than two years after Chairman Mukesh Ambani on Monday revealed a plan to sell a stake to Aramco. The move brought immense relief for investors and RIL shares soared 9% in early trade on Tuesday after the company said it aims to be debt-free by March 2021.
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 $75 billion. The company will also start preparing to list its retail and telecommunications units within five years, Ambani said.
“What caught our eye, though, was its target to cut headline net debt (now ₹1.57 trillion) to zero by March 2021 implicitly acknowledging investor concerns on its balance sheet,” said analysts from Jefferies India Pvt Ltd in a report on August 12, reports Livemint.com.
Over the last one year, RIL has taken several steps to reduce its debt. It has transferred its telecom unit, Reliance Jio Infocomm Ltd’s infrastructure assets off RIL’s balance sheet to an InvIT structure.
Also, the Saudi Aramco deal will potentially reduce another Rs1 trillion from overall debt, said an analysts.
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.
Reliance’s debt is backed by “extremely valuable assets,” Ambani said, signaling his group isn’t prone to the kind of troubles that have been plaguing many other corporate borrowers in India.
Apart from the Aramco deal, Reliance also announced a joint venture with BP Plc this month, under which the European oil major would buy 49% of the Indian firm’s petroleum retailing business. Reliance would receive about 70 billion rupees under this deal.