How Asia’s richest man racked up a $21 billion debt, and is now working overtime to clear it

Right on track.
Right on track.
Image: REUTERS/Denis Balibouse
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Reliance Industries (RIL), helmed by Asia’s richest man Mukesh Ambani, is in a hurry to wipe the $21 billion net debt in its books.

The oil-to-telecom conglomerate, which hopes to become a zero-debt company by March 2021, is now confident of meeting the target by the end of this calendar year. While analysts Quartz spoke to cite challenges to the plan, the company is pushing ahead in earnest.

Yesterday (May 17), RIL said American investment firm General Atlantic will buy a 1.34 % stake in its digital and internet business, Jio Platforms, for Rs6,600 crore ($992 million). “This investment values Jio Platforms at an equity value of Rs4.91 lakh crore and an enterprise value of Rs5.16 lakh crore,” said Jio Platforms.

General Atlantic, which has in the past backed global brands such as Airbnb and Uber, is only the latest addition to the fast-growing list of illustrious investors in Jio Platforms. In the past four weeks, Jio Platforms has raised over Rs60,000 crore from a clutch of prominent investors.

On May 14, RIL set the ball rolling on a Rs53,125 crore rights issue—its first in three decades. As part of the issue, existing shareholders can pick up one new share for every 15 they own for Rs1,257 apiece—a 14% discount on the closing price on April 30.

Ambani, the chairman and managing director who holds a 50% stake, along with other promoters have pledged to buy the full extent of their entitlement and also subscribe to all unsold shares in the rights issue.

“The rights issue will help RIL reduce net debt further by $7.5 billion,” Swiss investment bank Credit Suisse noted in an April 27 report.

Last August, British oil and gas major BP invested Rs7,000 crore in RIL’s fuel retail arm, Reliance Petroleum as part of the debt-cutting exercise.

How did RIL get into a position, though, that has forced this debt-diet?


In the five years till 2019, RIL invested an extravagant Rs5.4 lakh crore into various business, Ambani told shareholders at the company’s Annual General Meeting (AGM) in August last year.

Of this, Rs3.5 lakh crore went into Jio, the telecom venture launched in 2016. Ambani also rolled out a number of freebies to Jio’s users to expand the brand’s reach adding to the debt pile. Another Rs1 lakh crore went into expanding the company’s mainstay petrochemical business, in the same period.

The investments took RIL’s gross debt to Rs3.36 lakh crore as on March 31, 2020. Net debt, meanwhile, stands at Rs1.61 lakh crore.

It was after this monstrous amount that Ambani announced the goal to makes his company “a zero net debt firm” as some investors started voicing concerns.

“(RIL’s) openness to induct strategic partners in retail and telecom and monetise real estate suggests that the company wants to allay concerns that had crept up in recent times among some investors, lenders and perhaps rating agencies about its leverage, and also to address the ambiguity around its debt numbers,” Somshankar Sinha, head of India equity research at Jefferies India, told the Mint in September 2019.

Billion-dollar plan

The first step towards debt clearance came in April 2019 with the formation of two infrastructure investment trusts (InvITs): Digital Fibre Infrastructure Trust and Tower Infrastructure Trust.

Ambani’s firm transferred Reliance Jio Infratel’s fibre (RJIPL) and tower businesses into these trusts along with a gross debt of Rs1.07 lakh crore, it informed in a BSE filing (pdf) in April 2019.

After the InvITs formation came the deal with Canadian asset manager Brookfield in the same year. It invested Rs25,215 crore to take control of Reliance Jio Infocomm’s tower infrastructure.

The second step in the process is to sell a 20% stake in RIL’s oil and petrochemicals business. “Saudi Arabia’s state energy group, Saudi Aramco, will acquire a 20% stake RIL’s oil-to-chemical business for an enterprise value of $75 billion,” Ambani announced in August last year at the AGM.

According to the deal, Saudi Aramco would also supply 500,000 barrels per day of crude oil on a long-term basis to RIL’s Jamnagar Refinery, the world’s largest refining facility.

Experts think these and the recent investments in Jio are just the start and RIL has much more in its kitty.

“All companies tend to re-evaluate their debt position frequently. I believe RIL is doing the same. Times of recession and business slowdown become particularly attractive for deals,” said Bimal Gandhi, CEO of software firm Uniken.

Brokerage firms, too, are upbeat about RIL and think the best is yet to come.

“The closure of its stake sale in tower InvIT, further progress in fibre InvIT as well as the Aramco deal along with positive developments on the newly launched online to the offline retail platform (Jio Mart) are key potential triggers for the (RIL) stock,” CLSA India said in a note on May 5.

Furthermore, the plan to go debt-free will give an edge to Ambani’s Reliance in a post coronavirus world, think experts.

“A debt-free company will enjoy more market trust in a post-coronavirus world and will be in a position to take new risks,” said Kazim Rizvi, founding director of a policy think tank The Dialogue.

Beyond just debt

While RIL is raking in billions and eyeing more potential investors, experts believe that these deals are much more than just a debt clearance tool.

“Strategic partnerships that can help accelerate innovation in the tech space, open doors for competing globally, and getting rid of debt just before a global financial emergency waiting to happen is a step in the right direction,” said Rizvi.

In its April 27 report, Credit Suisse also mentioned about multiple benefits in favour of Reliance besides bringing down overall net debt. The following are the advantages it mentioned for Ambani’s firm:

WhatsApp’s user base will accelerate the adoption of JioMart app: With WhatsApp, Jio can address a large user set spending a considerable amount of screen time on the app. This saves JioMart from separately acquiring customers on its platform, which is a key barrier when a new app or a service is launched.

Leverage Facebook’s experience to monetise data through advertising: Facebook’s revenues mainly come through advertising. It emanates from its ability to effectively mine user behaviour data. Reliance can benefit from this as it sets its sights on monetising the large user base of Jio.

Potential access to Facebook’s proprietary technology: Facebook has commercialised multiple VR (virtual reality) devices (Oculus Go, Rift, Quest, etc) and has a video calling device like Portal. Both can work well with Jio’s broadband offering and Portal can also work with an enterprise solution.

In addition to the above points, market players say they won’t be surprised if RIL becomes a leading consumer and tech-focused company in the near future, especially with the induction of new money.

“They are already a technology-first company. When we got to see under the hood, we saw great practices and processes at the firm including the way their data centres are set up, and their apps are engineered. They can implement changes within a few days,” said Kedar Kulkarni, co-founder and CEO of HyperVerge, a Silicon Valley-based deep-learning startup. HyperVerge has worked with the Reliance Jio team and helped the firm switch to an agent-assisted, face-based digital KYC.


Despite the strong position RIL is in thanks to the latest deals, analysts still think that achieving its primary target of going net debt-free will be challenging.

“With the deal with Saudi Arabia’s Aramco for selling stakes in refinery business looking uncertain, this target (of going debt-free) seems ambitious,” said Rizvi of The Dialogue.

Given the Covid-19 outbreak and nosediving oil prices, the deal is set to be delayed, or may even stand cancelled.

“While the Saudi Aramco due diligence is ongoing, clearly with Covid-19 disruptions, the transaction would likely get pushed out. The key investor concern is whether the collapse in crude would lead to deal cancellation,” noted an April 22 report by JP Morgan.

Others, too, are sceptical about it.

“The recent infusion of capital into RIL by Facebook, falling oil prices disturbing the financial position and attractiveness of oil assets, and no increment newsflow from Aramco, investors may be starting to believe that the Saudi firm is no longer interested,” said a May 13 report by HSBC.

Another threat to the deal is posed by the nosediving oil prices.

“With the collapse in oil prices, the risk is rising that the deal will not go has increased although we now value downstream at $55 billion gross, which is a 20% discount to Aramco valuation,” said US-based brokerage firm Bernstein in its report published last month.

Apart from this, the company is still waiting for regulatory approval on its Brookfield deal, which is yet to be closed.

However, analysts believe that RIL may figure out ways to dodge these challenges.

“The recently proposed rights issue by RIL may be the way for them to achieve the target. The rights issue is a step towards raising capital by selling shares at a discounted price to existing shareholders,” Rizvi explained. “Morgan Stanley has estimated that RIL could raise $13.8 billion by issuing 12% of new shares at a discount of 5% on the market price.”