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Is Reliance really net debt-free? Maybe not

Reliance Industries Limited issued a press release recently, highlighting the amount of investments raised by it during the lockdown and how it has helped it to achieve its goal of becoming a net debt-free company. 

Key points from the press note:

  • RIL raises Rs 168,818 crore in 58 days

  • JioPlatforms has got investments of  Rs 115,694 crore from leading global investors for 24.7% stake

  • The rights issue raised Rs 53,124.20 crore

  • Our net debt was Rs 1,61,035 crore as of Mar 31, 2020

  • With these investments RIL has become net debt free

  • RIL CMD Mukesh Ambani says: “I have fulfilled my promise to the shareholders by making Reliance net debt-free, much before our original schedule of Mar. 2021."

Net debt is equal to total borrowings less cash / cash equivalents and short-term investments (marketable securities).

It is a liquidity metric used to determine how well a company can pay all off its debts if they were due immediately. 

RIL has over the years adopted a high debt high cash strategy as large part of its debt is in foreign currency with very low rates of interest (approx.1.5% for 5 year tenors), while it enjoys higher returns on its cash / investments in fixed deposits and mutual funds.

On a technical point, the entire rights issue money has not been received by the company yet. It has taken only 25% of the rights issue money (Rs 1,257share) in first phase, i.e, Rs. 13,281 crore. Balance money in instalments later, last instalment in November next year. So it’s almost debt-free or in the process of doing so but not actually as of yet. 

So instead of raising Rs 1.68 lakh crore it has raised Rs 1.28 lakh crore. Around Rs 40,000 crore still to be raised. 

The amount of money pending on rights issue is also not shown as a receivable in its books of accounts, which could have been taken as cash and cash equivalents. (Though debatable) 

Some could argue the company would have generated some free cash flow during this period, yes, however, the increase in cash equivalents in 2019 was only Rs 2,600 odd crore.

With the investment of Rs 11,367 crore by Saudi Arabia’s Public Investment Fund (PIF) in lieu of a 2.32 per cent stake, a major stake sale cycle in Jio Platforms Ltd (JPL), a subsidiary of Reliance Industries Ltd (RIL), has ended for now, said JP Morgan in a report.

This is the 11th foreign investment in Jio Platforms in nine weeks, following fund infusions from Facebook (the largest minority shareholder), Silver Lake Partners, Vista Equity Partners, General Atlantic, KKR, Mubadala, additional investments from Silver Lake companies, Abu Dhabi Investment Authority (ADIA), TPG Capital, and L Catterton.

RIL hit market capitalization of $150 billion, 60th most valued company in the world. The market is now looking at RIL as a technology company from its earlier version of oil & chemicals. In FY21 50% of its EBITDA is likely to come from telecom and retail segments.

Slowly and steadily it is joining the league of Apples, Googles, Microsofts which are zero debt companies with high level of cash which provides it with greater flexibility. As per news reports, RIL is planning a foreign listing for JIO.