Change in the world business dynamics after coronavirus pandemic and an ongoing crude price war between Saudi Arabia and Russia may impact Mukesh Ambani's plan to make Reliance Industries (RIL), India's most profitable company, a zero net debt company by March 2021. As per the plan, RIL will have to conclude three major deals - Rs 1.1 lakh crore deal with Saudi Aramco, Rs 7,000 crore deal with BP Plc, and stake sale in Reliance Jio's tower infrastructure investment trust (InvIT) - within one year to cut the net debt of Rs 1.5 lakh crore to zero. According to sources in the banking industry, conclusion of these deals at a time of low valuations and global crisis is impossible.
The email sent to RIL did not elicit any response.
Saudi Aramco, the oil giant run by Saudi Kingdom, has slashed its spending plans by $10 billion after the Kingdom launched a price war that sent the value of crude tumbling to $25 a barrel. It will spend between $25billion and $30 billion this year, down from the $35 billion to $40 billion outlined before its record-breaking $1.7 trillion public offerings of shares late last year, and down from the $32.8 billion it spent last year. Lower oil prices had reduced its net profit by 21 per cent to $88.2 billion last year, but still, the company is world's most profitable company. If the crude price continues to be lower, it will hurt the price realisation and profitability of Aramco this year also, leading to slow-moving in its planned deals across the world.
Ambani, the richest person in India, had termed the debt reduction plan as a "very clear roadmap" in his annual general meeting (AGM) speech in August 2019. According to the plan, RIL has agreed to form a long-term partnership with Aramco in oil to chemicals (they call it O2C) division. Aramco is expected to invest Rs 1.1 lakh crore for 20 per cent stake in O2C division at an enterprise value of $75 billion. "This partnership will cover all of RIL's refining and petrochemicals assets, including 51 per cent of the petroleum retail joint venture," Ambani said at the AGM.
The European oil major BP Plc and RIL signed a definitive agreement in December to form the new Indian fuels and mobility joint venture after an initial agreement in August. The JV, where RIL will hold 51 per cent and BP the balance 49 per cent stake, will take ownership of RIL's existing 1,400 fuel retail network and aviation fuel business. BP will pay Rs 7,000 crore to RIL for the stake in JV. They plan to set up a network of 5,500 retail outlets under 'Jio-BP' brand across India.
RIL has been in the process to sell its stake in tower InvIT when its share price crashed by 40 per cent in a month until March 23. The market valuation crumbled by around Rs 3.5 lakh crore because of corona and crude impacts.
In early 2019, RIL transferred Reliance Jio Infratel's fibre and the tower businesses into two InvITs - Digital Fibre Infrastructure Trust and Tower Infrastructure Trust. Along with assets, gross debt of Rs 1.07 lakh crore of respective businesses have been transferred to the trusts. An affiliate of Brookfield Asset Management has already invested Rs 25,215 crore in the Tower Infrastructure Trust, which has 51 per cent stake in Reliance Jio Infratel.
RIL has also been looking for strategic and financial investors in consumer businesses - Jio and Reliance Retail. Of late, there were reports that RIL is in talks with Facebook to sell 10 per cent stake in Jio. The company didn't respond to the reports.
Besides, Ambani has been planning to sell some of real estate assets (it might include land that RIL bought for building special economic zones in Mumbai) and exit from some of the financial investments. Most of these plans will see a delay because of the corona driven financial crisis. RIL has invested Rs 5.4 lakh crore over the last five years for building and expanding its businesses - it spent Rs 3.5 lakh crore for building the assets of Jio and rest largely for the capacity expansion of petrochemicals business and expanding the network of Reliance Retail.