Aramco, BP to Help Ambani Slash $22 Billion of Reliance Debt





(Bloomberg) -- Billionaire Mukesh Ambani's Reliance Industries Ltd. 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 Monday. Aiding that effort would be a decision to sell 20% of Reliance's oil-to-chemicals business to Saudi Arabian Oil Co., 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, Ambani said.

Aramco Buys Into Reliance Refining Business as Earnings Drop

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. 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 Ltd., 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 Ltd. to eventually take on Amazon.com Inc. and Walmart Inc.

"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 Tiny Deals Behind Mukesh Ambani's Bid to Take on Amazon

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

While the spending on Jio has helped Reliance lure almost 350 million 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 trillion rupees ($22 billion) at the end of March 31, according to 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% from a record reached on May 3, compared with a 3.6% decline in the benchmark S&P BSE Sensex.

Reliance's debt is backed by "extremely valuable assets," 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 by Ambani's younger brother, Anil, 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% of the Indian firm's petroleum retailing business. Reliance would receive about 70 billion rupees under this deal.

The "commitments" from the Aramco and BP deals alone are about 1.1 trillion rupees, 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 Ambani:

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

(Updates with planned offerings by Reliance in last section.)

--With assistance from Ari Altstedter.

To contact the reporters on this story: P R Sanjai in Mumbai at psanjai@bloomberg.net;Dhwani Pandya in Mumbai at dpandya11@bloomberg.net;Debjit Chakraborty in New Delhi at dchakrabor10@bloomberg.net

To contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net, Bhuma Shrivastava

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

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