DECIPHERING RIL’S DEBT FREE VISION

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Reliance Industries Limited (RIL), India's multinational conglomerate at its 42nd Annual General Meeting (AGM) of shareholders held on 12th August, 2019 decided to go “Debt free” by paying of its ₹161,035 crore worth of debt and declare itself as debt free company by the end of financial year 2021-22.

Reliance Industries Limited, over the past years have invested ₹114,742 crores worth of their funds towards there subsidiaries making the company investment portfolio even bigger and stronger.







Reliance industries limited, and its subsidiaries include:-

Particulars

Percentage of holding

Reliance Petroleum

100%

Jio Platform

85.20%

Reliance Retail

100%

Jio Payment Bank

100%

Jio Saavan

100%

Network 18

98%

Hathway

71.95%

Den Network

78.62%

Football Sports Development Ltd

100%

Mumbai Indians

95%
(www.relianceindustryltd.in)

Since AGM held every possible steps are taken forward by the company to fulfill its target of being a debt free company. At present, Reliance Industries balance sheet shows a total debt of ₹161,035 crores which is one of the major concern for the company, since it has impacted the overall profitability which is left available for its shareholders.

Debt pattern over the years:-

Financial year

Amount in crores

FY-2011

₹39,328

FY-2012

₹25,543

FY-2013

₹27,894

FY-2014

₹67,039

FY-2015

₹97,301

FY-2016

₹90,696

FY-2017

₹119,375

FY-2018

₹140,700

FY-2019

₹154,478

FY-2020

₹161,035
(www.relianceindustries.in)

REASONS FOR GOING DEBT FREE?

One of the major reason for going debt free for the company is falling net profit in its core business operations (petrochemical industry) which is highly affected with increasing need for working capital and constant fluctuation in oil price (recent price fall in crude oil affected the company’s performance which resulted in formation of provision for contingency and liabilities, which shall be discussed in the upcoming blog).

With so much debt most of the earnings of the company were diverted towards payment of interest relating to the debt acquired by the company. So the company’s earnings after tax i.e., earnings available for distribution for the equity shareholders, was majorly affected, which lead to a moderate credit rating in year 2018-19.

EFFECTS OF GOING DEBT FREE:-

By deciding to go debt free there is an expectation that there will be a significant change in earning per share for its shareholders and drastic change in its P/E ratio. Since the payment of interest towards debt acquired shall be out of the picture, more of the earnings will be available for the company and its shareholders. By going debt free Reliance Industries shall save up to approximately 2.3 billion dollars’ worth of interest payment.  

More or less, Reliance JIO platform is also planning to take a place on the bid for 5G spectrum which was likely to come in year 2020-2021 but was delayed due to COVID'19 pandemic. So it's quite visible that the company need not only raise funds just to pay off the debt but also to raise enough funds to meet its working capital to avoid it's future dependence on debt.

THE VARIOUS WAYS THE COMPANY HAS RAISED FUNDS TILL NOW. (25/05/2020)

  • Issuing right share's (Reliance Industries Ltd).
  • Liquidating their private stack in their direct subsidiaries (entry of FDI- foreign direct investment in there subsidiaries).
  • Parting out there holding to government entities ,LIC of India is one of the major private stack holder by 7.32% holding in the company.(Times of India)

THE MAJOR DEAL MADE BY THE COMPANY:-

  • Company raised a total fund of ₹53,125 crores by the means of issue of rights share.
  • Major foreign direct investment made under companies direct subsidiary JIO Platform till date:-

Particular

Amount of  investment (in crores)

Stack acquired

Facebook Inc.

₹43,574

9.99%

Silver Lake

₹5,656

1.15%

Vista

₹11,367

2.32%

General Atlantic

₹6,598

1.34%

KKR

₹11,367

2.32%
(Economic Times of India)


ANALYSIS ON DEBT STRUCTURE AFTER FDI DEALS MADE BY THE COMPANY:-

Particulars

Debt after such deals

(in crores)

After Facebook deal

₹117,435

After Right Issue

₹64,310

After Silver Lake deal

₹58,654

After Vista Equity deal

₹47,287

General Atlantic deal

₹40,689

After KKR deal

₹29,322

From the data extracted it is quite visible that there are likely to be more deals in which the company shall enter to become total debt free company.


 

 


Location: Surat, Gujarat, India

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