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Home >Markets >Mark To Market >Reliance Industries is apparently net-debt free, but actually it is not so

Reliance Industries Ltd (RIL) has announced that it has become net-debt free. In March 2020, the company had reported a net debt of 1.61 trillion ($21 billion). Since then, it has raised $15.2 billion by selling stakes in Jio Platforms Ltd. Its $7 billion rights issue was oversubscribed 1.6 times.

While the fundraising spree is unprecedented, the fact remains that about three-fourths of the proceeds from the rights issue will be received only in the next financial year. The issue was structured such that investors needed to pay only 25% of the value of the shares they applied for, with the rest expected in two instalments in FY22.

Graphic: Satish Kumar/Mint
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Graphic: Satish Kumar/Mint

The investments in Jio Platforms are also yet to be received, but analysts expect the funds to come in this financial year.

A stake sale to BP for the petro-retail joint venture (JV) is also expected to conclude in FY21 and bring in about 7,000 crore to the kitty. Since the stated intent of the company was to reduce its reported net debt to zero by end-FY21, more needs to be done to achieve the target. It may be more appropriate to say that RIL’s reported net debt is on its way to becoming zero.

In any case, it’s important to remember that there already exists a wide gap between RIL’s reported net debt and estimates of its net debt by credit rating agencies and brokerage analysts.

Analysts at CLSA, Bernstein, Kotak Institutional Equities, Goldman Sachs and Nomura pegged the company’s net liabilities at between 2.4 trillion and 2.6 trillion in FY20.

They included deferred spectrum liabilities and capex creditors to arrive at their estimate of net debt. Some analysts also add debt transferred to the fibre investment trust (InvIT) and end up with an even higher net liabilities figure.

Even so, the extent of fundraising is substantial and RIL’s debt will reduce meaningfully.

If the $15 billion deal with Saudi Aramco concludes and the company manages to tie in a sponsor for the fibre InvIT, it can end up being debt-free even in the books of analysts and rating agencies.

But RIL has been known to deploy a “high debt, high cash" strategy. This helps in keeping its investment options open.

As such, it may well retain a large part of the cash from further asset sales, rather than repay all its creditors.

Given the company’s fairly cushy position on the net debt front, it’s little wonder that RIL shares have reached new record highs and its market capitalization has crossed $150 billion, the first Indian company to reach this milestone.

RIL may not exactly be a debt-free company, but the debt overhang has clearly lifted from over its stock.

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