Asset sales key to Reliance Group's debt reduction plans

Anil-Ambani [File] Anil Ambani | Reuters

Reliance Infrastructure, this week, initiated exclusive talks with Adani Transmission to sell its power generation, transmission and distribution business in Mumbai.

The Mumbai business has been the largest such integrated power utility in the country. It had 3 million customers, peak power distribution of 1,800 mega watt and power generation facilities. It generated a revenue of Rs 7,532 crore in 2016-17.

However, with the pressure to reduce huge debts, and company setting its sights on opportunities in other areas like defence, its not a surprise that the often called crown jewel has been put on the block by the Anil Ambani Group company.

“Reliance Infra intends to utilise the proceeds of the proposed transaction entirely to reduce its debt, and further strengthen its financial position to tap mega growth opportunities in defence and EPC (engineering, procurement and construction) for the infrastructure sector,” the company said.

Reliance Infra had debt of about Rs 25,800 at the end of last financial year. While the company has not disclosed financial details of the potential deal with Adani Transmission, market watchers estimate it to be valued at around Rs 13,000-14,000 crore.

Reliance Infra and Adani Transmission have entered into a period of exclusivity till January 15, but given that any potential deal will be subject to confirmatory diligence, definitive documentation and customary approvals, there is no certainty of a deal.

Separately, the company also announced a day earlier that it was transferring its Western Region System Strengthening Scheme (WRSS) transmission undertakings to Adani Transmission. The WRSS businesses were valued at Rs 1,000 crore.

If the Mumbai business sale does go through, the company will be left with Delhi power distribution business, road assets, EPC business, defence and Mumbai metro. The company is looking to monetise 10 road projects through an infrastructure investment trust (InvIT).

Last year, the company sold its cement business to Birla Corporation for Rs 4,800 crore. These proceeds too were aimed at lowering debts.

Its not just Reliance Infra alone, but across the Anil Ambani-led Reliance Group, asset sales have become key to improving financial health. Last year, Credit Suisse had pegged the Reliance Group debt at around Rs 1.2 trillion.

At Reliance Communications (RCom), which has debts of Rs 45,000 crore, it is negotiating a deal to sell its stake in telecom tower business to Canada's Brookfield Infrastructure.

While a proposed deal to merge its wireless telecom business with Aircel fell through, it is looking to monetise its existing spectrum and the prime real estate in Navi Mumbai, which houses the Dhirubhai Ambani Knowledge City. RCom has aims to cut its debt by almost half.

Pressure is mounting on the Anil Ambani Group to reduce its debt as ratings agencies have cut ratings, say analysts.

Recently, Fitch Group-owned India Ratings and Research revised its ratings on Reliance Infra's short-term and long-term debts, citing delays in proposed debt reduction of the company.

Earlier this year, Moody's and Fitch had downgraded their credit ratings on RCom. Moody's has a “Ca” rating on RCom's senior secured bonds, with a negative outlook.

In June, banks had given Rcom seven months to pare its debts and service its loans timely.

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