Reliance Industries Ltd (RIL) has announced that it has become net-debt free. In March 2020, it had reported a net debt of Rs1.61 trillion ($21 billion). Since then, it has raised $15.2 billion by selling stakes in its digital services arm, Jio Platforms Ltd, and its $7 billion rights issue that was oversubscribed 1.6 times.
While the fundraising spree was unprecedented, the fact remains that about three-fourths of the proceeds from the rights issue will be received only in the next financial year. So it may be more appropriate to say that RIL’s reported net debt is on its way to being zero. Perhaps, one could say RIL has become virtually debt free, although, of course, no such term exists in an accounting sense.
In any case, it is important to remember that there already exists a wide gap between RIL’s reported net debt and estimates of its debt by credit rating agencies and brokerage analysts.
Analysts at CLSA, Bernstein Research, Kotak Securities, Goldman Sachs and Nomura pegged the company’s net liabilities at Rs2.4 trillion-Rs2.6 trillion in FY20. They included deferred spectrum liabilities and capex creditors to arrive at their estimate of true debt. Some analysts add debt transferred to the fibre investment trust (InvIT) and end up with an even higher net liabilities figure.
Even so, the extent of fundraising is substantial and RIL’s net debt will reduce meaningfully. If the $15 billion deal with Saudi Aramco concludes and the company manages to tie in a sponsor for the fibre InvIT, it can end up being net-debt free even in the books of analysts and rating agencies.
But RIL has been known to deploy a ‘high debt, high cash’ strategy. This helps in keeping its investment options open. As such, it may well retain a large part of the cash from further asset sales, rather than repay all its creditors.
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