Mukesh Ambani’s massive warchest; how RIL may use Jio stake sale money other than to cut debt

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June 16, 2020 11:11 AM

India’s richest man Mukesh Ambani has been preparing a warchest, not just to tide through any and all uncertainties that might come his way, but to also to accelerate growth of his diversified businesses and to pursue other business opportunities that might arise.

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India’s richest man Mukesh Ambani has been preparing a warchest, not just to tide through any and all uncertainties that might come his way, but to also to accelerate growth of his diversified businesses and to pursue other business opportunities that might arise. Reliance Industries Ltd (RIL) has so far raised Rs 1.04 lakh crore by selling equity stake in its digital telecommunications arm Jio Platforms to leading global investors including Mark Zuckerburg’s Facebook; and another Rs 53,124 crore from a rights issue, along with proceeds from Tower InvIT sale to Brookfield and consortium. This warchest may be used by Mukesh Ambani not only to trim RIL’s net debt but also to to explore opportunities that augment his already diverse business, said a report by Kotak Institutional Equities.

RIL, one of India’s most profitable companies with a reported revenue of Rs 1.51 lakh crore in the March quarter, runs a diversified business having its hands deep in refining, retail, and is now marching forwards as a digital services firm. RIL, since the coronavirus pandemic forced the world to sit at home, has been hunting investors and has not failed to impress. Earlier, in April RIL grabbed an investment worth Rs 47,574 crore from Facebook for a 9.99% equity stake in Jio Platforms. This was followed by a slew of investments from private equity firms that saw RIL sell 22.36% stake in Jio Platforms. However, Mukesh Ambani was not done with that. He still had the Rs 53,124 crore rights issue planned, out of which 25% has already been procured. Apart from the already-completed transactions RIL is also expected to generate cash inflows from sale proceeds of a 20% stake in the oil-to-chemicals (O2C) business to Saudi Aramco and from the monetization of fiber InvIT.

Although some might suggest that near-term headwinds might delay the deals that RIL has in the pipeline or might attract negotiations, Analysts at Kotak Institutional Equities are of the view that, “strategic significance for downstream access for Aramco has only gone up, amid recent developments in the oil market.” Reliance Industries has for long been an oil and gas company but the revised focus after the launch of Jio in 2016 has pushed many analysts to believe that Mukesh Ambani will soon present his firm as a IT player. Gross refining margins for RIL were at $8.9/barrel (bbl) in the March quarter. 

Kotak Institutional Equities said that RIL might not utilize all the cash inflows it now has to repay the entire net debt but given its low cost of funding and prolonged maturity profile for most of its borrowings; a portion of these inflows may be used to pay off capex creditors in due course. “The surplus amount may be invested in the treasury in interim while acting as a warchest for the company to look for opportunities amid ongoing adversities, which may complement any of its business segments,” the report said. RIL may also use the cash inflows to pursue organic plans such as accelerating rollout of new commerce, FTTH and enterprise businesses or bidding for 5G spectrum keeping in mind the fast-paced growth that India’s telecom industry is expected to witness. 

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