Reliance Industries, the largest investor in mutual funds worth around Rs 43,000 crore, is aggressively redeeming various funds of late to invest into its soon-to-be-launched telecom arm Jio, fuel expansion of its petrochemical business apart from paring debt.
The move, which has seen the largest private sector company withdrawing close to Rs 15,000 crore in recent days, is also seen as a way to de-risk its investments as it expects interest rates to remain high, sources said.
When contacted, RIL spokesperson declined to comment.
For long, the Mukesh Ambani-led company has been the biggest treasury player and used to net around 40 per cent of its total profit from such operations.
However, for the past few quarters, it has been steadily lowering treasury play to around mid-20s and increasing its investments in MFs and other long-term investments.
At the end of 2014-15, Reliance had Rs 43,005 crore in mutual fund debt schemes and other papers, up from a little over Rs 36,000 crore a year ago.
Of this, Reliance has reportedly moved around Rs 15,000 crore in the past few days from duration schemes to liquid schemes of mutual funds.
“RIL is investing large amount in various projects like telecom (around Rs 1 trillion) and petrochemicals. RIL’s 4G telecom arm Jio was supposed to take off by the month-end, however, it has got delayed now.
“Moreover, the company is looking for expanding its petrochemical business,” LIC Nomura Mutual Fund chief investment officer Sarvana Kumar told PTI.
LIC Nomura, however, did not say whether it has seen any redemption by RIL nor did it say whether the company had invested in any of its funds.
It can be noted that Reliance has undertaken a massive USD 32 billion capex a few years ago to set up infrastructure for its 4G telecom services, Reliance Jio, and to expand its oil refining and petrochemicals business.
Already, the company has invested Rs 1 trillion in Jio.
An analyst, who wished not to be named, said when RIL started all its multi-billion dollar expansion it had no debt on its book at a net level.
“I think with these redemptions, company is creating liquidity with a view to make zero debt at the net level and become debt-free on a debt basis,” the analyst said.
It can be noted that during the past AGM, RIL chairman Mukesh Ambani had said that as investment cycles peak, the company would strive to become debt-free on a net level, which should start from next fiscal.
Many funds believe domestic markets will face withdrawals by FPI if the US rates rise.
“RIL is taking a call in view of the fact that the interest rate may harden post Fed rate hikes, which is likely to be around 25 bps when it reviews its monetary policy on December 16.
“In their bid to protect capital appreciation, they are liquidating their duration investment and shifting towards liquid funds which are free from any interest rate risks,” he added.
Duration investment schemes are medium-term mutual funds that offer good returns when interest rates are low, while liquid schemes are almost cash equivalent.