Aramco, BP deals to help Ambani slash $22b of Reliance debt

Mukesh Ambani. Photographer: Simon Dawson/Bloomberg

Billionaire Mukesh Ambani’s Reliance Industries Ltd. is on a mission to reduce debt after racking up $76 billion 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 Monday. Aiding that effort would be a decision to sell 20% of Reliance’s oil-to-chemicals business to Saudi Arabian Oil Co., or Aramco, 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.

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 $50 billion 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.”

Signaling 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 jeweler in India, and in May paid $82 million 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.

Not Since 2013

Reliance had a net debt of 1.54 trillion rupees ($22 billion) 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.

Last week, Credit Suisse cut its recommendation for Reliance’s stock and the price target citing reasons including rising liabilities and finance costs. Shares of the company have slumped about 18% from a record reached on May 3, compared with a 3.6% decline in the benchmark S&P BSE Sensex.

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. The conglomerate controlled by Ambani’s younger brother, Anil, has been struggling to pay creditors while his mobile carrier has slipped into bankruptcy.

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.

The “commitments” from the Aramco and BP deals alone are about 1.1 trillion rupees, Ambani said, adding that Reliance will induct “leading global partners” in telecom and retail units in the next few quarters.

Some of the planned offerings revealed by Ambani:

  • A new broadband service called Jiofiber will start commercial services from Sept. 5 and will be available at tariff packs starting as low as 700 rupees a month with a minimum speed of 100 Mbps
  • Jio will install across India one of the world’s largest blockchain networks in the next one year
  • After mobile broadband, Jio to start generating revenues from Internet of Things and broadband for home, businesses and smaller enterprises by March 2020
  • Reliance is getting ready to roll out the new commerce platform at a larger scale to capture what Ambani sees as a $700 billion business opportunity
  • Reliance Retail aims to be among the world’s top 20 retailers in the next five years

Bloomberg

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.