Saudi Aramco To Help Mukesh Ambani Cut Company's Rs 1.5 Lakh Crore Debt

Billionaire Mukesh Ambani's Reliance Industries is on a mission to reduce debt after racking up $76 billion in capital expenditure in the last five years.

The conglomerate aims to be a zero-net-debt company in 18 months, Asia's richest man told shareholders on Monday. Aiding that effort would be a decision to sell 20 per cent of Reliance's oil-to-chemicals business to Saudi Arabian Oil, or Aramco, at an enterprise value of $75 billion. The company will also start preparing to list its retail and telecommunications units within five years, Mr Ambani said.

The tycoon is cleaning up the group's finances following years of spending on his wireless carrier, whose entry in 2016 with free calls and cheap data upended the industry and spurred a consolidation. The $50 billion plowed into the phone venture, mostly in debt, has raised concerns among analysts including at Credit Suisse Group AG that Reliance's ballooning borrowings could weigh on growth. Mr Ambani sought to allay those fears.

"With these initiatives, I have no doubt that your company will have one of the strongest balance sheets in the world," he said. "We will also evaluate value unlocking options for our real estate and financial investments."

Signaling an end to the spending cycle at Reliance Jio Infocomm, Mr Ambani is setting a new growth path for his group, whose bread-and-butter business has been oil refining and petrochemicals. The company is building an e-commerce platform by leveraging its phone network and Reliance Retail to eventually take on Amazon and Walmart.

"This is a unique business model we are building in partnership with millions of small merchants" and mom-and-pop stores, he said. As part of the plan, Reliance has been forming partnerships and acquiring technology assets. This month, Reliance announced plans for a joint venture with Tiffany & Co to open stores for the jeweler in India, and in May paid $82 million for the British toy-store chain Hamleys.

The new businesses are likely to contribute 50 per cent of Reliance's earnings in a few years, from about 32 per cent, Mr Ambani said.

While the spending on Jio has helped Reliance lure almost 35 crore users in the world's second-biggest mobile market, the growth has come at a price.

Not Since 2013

Reliance had a net debt of 1.54 lakh crore rupees ($22 billion) at the end of March 31, according to Mr Ambani. His plan to carry zero debt would mean the borrowings would fall below the company's cash reserves, a level not seen since 2013.

Last week, Credit Suisse cut its recommendation for Reliance's stock and the price target citing reasons including rising liabilities and finance costs. Shares of the company have slumped about 18 per cent from a record reached on May 3, compared with a 3.6 per cent decline in the benchmark S&P BSE Sensex.

Reliance's debt is backed by "extremely valuable assets," Mr Ambani said, signaling his group isn't prone to the kind of troubles that have been plaguing many other corporate borrowers in India. The conglomerate controlled byMukesh Ambani's younger brother, Anil Ambani, has been struggling to pay creditors while his mobile carrier has slipped into bankruptcy.

Apart from the Aramco deal, Reliance also announced a joint venture with BP Plc this month, under which the European oil major would buy 49 per cent of the firm's petroleum retailing business. Reliance would receive about Rs 7,000 crore under this deal.

The "commitments" from the Aramco and BP deals alone are about Rs 1.1 lakh crore, Mukesh Ambani said, adding that Reliance will induct "leading global partners" in telecom and retail units in the next few quarters.

Some of the planned offerings revealed by Mukesh Ambani:

• A new broadband service called Jiofiber will start commercial services from September 5 and will be available at tariff packs starting as low as 700 rupees a month with a minimum speed of 100 Mbps
• Jio will install across India one of the world's largest blockchain networks in the next one year
• After mobile broadband, Jio to start generating revenues from Internet of Things and broadband for home, businesses and smaller enterprises by March 2020
• Reliance is getting ready to roll out the new commerce platform at a larger scale to capture what Ambani sees as a $700 billion business opportunity
• Reliance Retail aims to be among the world's top 20 retailers in the next five years