Reliance Industries has invested Rs 5.4 lakh crore across its various businesses in the last five years. This not only include investments in its traditional oils to chemicals business, where it owns the world’s largest refining complex in Jamnagar, but also more in its consumer focussed telecommunications and retail businesses. But, these huge investments has also meant an overhang of rising debt.
Speaking at the company’s 42nd annual general meeting on Monday, RIL chairman Mukesh Ambani unveiled a bold plan to become a net debt free firm in just 18 months, by March 31, 2021.
In one of the biggest step in that direction, it has struck a deal with Aramco; the Saudi Arabian oil giant will buy a 20 per cent stake in Reliance’s oil to chemicals business, based on an enterprise value of $75 billion.
“We have a long-standing crude oil relationship with Saudi Aramco and we would be happy to see this further strengthened with this investment. Saudi Aramco’s interest is a strong endorsement of the quality of our assets and operations as well as of the potential of India,” said Ambani.
Reliance already buys around 220,000 barrels per day (bpd) of crude oil from Aramco. The stake sale deal also includes an agreement for Aramco to sell 500,000 bpd crude oil to RIL’s Jamnagar refinery on a long-term basis.
“This signifies perfect synergy between the world’s largest oil producer and the world’s largest integrated refinery and petrochemicals complex,” said Ambani.
Gagan Dixit, vice-president, oil and gas analyst at Elara Capital said that the deal with Aramco will provide “much needed capital for the oil to chemicals (business) expansion plans in a phased manner over the next decade.”
Elsewhere, British energy company BP is acquiring a 49 per cent stake in RIL’s petro-retailing business. RIL and BP have announced a new joint venture that would include a retail service station network and aviation fuels business across India.
RIL, currently, operates 1,400 fuel retail sites in India, which the RIL-BP JV will look to grow to 5,500 sites in five years.
RIL expects to close both the deals within the current financial year, subject to definitive agreements, due diligence, regulator and other customary approvals.
“The commitments from these two transactions are about Rs 1.1 lakh crore,” said Ambani.
The company has also transferred its telecom infrastructure assets into two separate infrastructure investment trusts (InvIT) for Rs 1.25 lakh crore, post which its net debt at the end of last financial year stood at Rs 154,478 crore.
A large part of Reliance’s investments over the last few years have gone into its consumer businesses. With over 340 million subscribers, its 4G VOLTE firm Jio is already the largest telecom operator in the country. Reliance Retail is also the largest in the country with over 10,415 outlets. In the last year alone it opened 3,000 stores, which roughly translates to 8 stores per day.
RIL has received strong interest from strategic and financial investors in retail and Jio, said Ambani. His plan is to induct leading global partners in these businesses over the next few quarters and move towards listing of both Reliance Retail and Jio within the next five years.
“With these initiatives, I have no doubt that your company will have one of the strongest balance sheets in the world,” said Ambani.
Jio, which launched three years ago, disrupted the telecom industry with free voice calls and aggressively priced data plans. The move led to a consolidation in the industry, with several smaller operators exiting the country and others like Vodafone and Idea merging.
Now Jio is getting ready to unleash its fiber internet services on a commercial basis from September 5th, the third anniversary of launch of Jio.
JioFiber plans will start with 100 Mbps speed for the basic plan, going all the way up to 1,000 Mbps. The pricing between Rs 700 to Rs 10,000 per month, will be at less than one-tenth of global rates, said Ambani.
The company received over 15 million registrations from 1,600 towns and based on the registrations, the company has drawn up plans to reach 20 million residences and 15 million business establishments and it hopes to complete the network rollout in a year.
There are various incentives that JioFiber will offer customers, which includes free voice calls mobile or fixed line to any Indian telecom operator. The default tariffs on Jio Home phone for international calling will also be one-fifth to one-tenth of existing industry tariffs and the company will also offer an unlimited calling pack of Rs 500 per month to the US and Canada.
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Furthermore, premium JioFiber customers will also be able to watch movies at home on the same day they get released in cinemas, through a Jio First-Day-First-Show service, it plans to launch some time in the middle of 2020. JioFiber customers opting for annual plans will also get a LED TV and a 4K set-top box free as a part of its welcome offer.
On the enterprise side, Jio and Microsoft have entered into a long-term alliance where by Jio will set up a network of large datacenters across India, and Microsoft will bring its Azure cloud platform into Jio’s datacenters.
“Our long-term partnership combines the power of our technology – including Azure, Azure AI and Office 365 – with Jio’s connectivity and digital solutions. Together, we will offer comprehensive technology solutions – from compute to storage to connectivity and productivity to small and medium businesses everywhere in the country,” said Satya Nadella, CEO of Microsoft, via a video message.
The market would welcome RIL’s plans to pare its debt, say analysts.
“This programme to aggressively pursue deleveraging in businesses such as OTC (oil to chemicals), fiber and tower and emerge as a zero debt company in the next 18 months will strengthen the consolidated balance-sheet leading to strong valuation re-rating of the stock,” said Ajay Bodke, CEO PMS at stock broker Prabhudas Lilladher.
RIL shares closed 0.9 per cent higher at Rs 1,162 on the BSE. The broader Sensex was up 255 points or 0.7 per cent at 37,581.91 points.
