Due diligence on Saudi deal
Proceeds from recently announced asset sales will improve Reliance Industries Ltd’s (RIL; BBB+/Stable/–) financial flexibility, and further its goal of being effectively debt free by March 2021, according to S&P Global Ratings.
RIL is planning an Indian rupee 530 billion equity rights issuance. It has also announced the sale of another 1.15% stake in Jio Platforms Ltd to the US private equity firm Silver Lake Partners, raising Rs.56.6 billion.
This follows RIL’s binding agreement to sell a 9.99% stake in Jio Platforms to Facebook Inc for Rs.435.7 billion (US$5.7 billion).
Combined with an expected INR70 billion of proceeds from its joint-venture with BP PLC, RIL will likely receive about Rs.1.1 trillion from the above transactions.
“While we only include the proceeds from the Facebook deal in our base-case model, we believe the additional asset sales may also improve India-based RIL’s financial flexibility and cut its net debt. Our base case assumes RIL’s adjusted debt will decline from Rs.2.7 trillion in financial year 2020 (year ending March) to Rs.2.0 trillion in financial year 2022,” said S&P.
In the event that RIL’s cash proceeds are greater than our base case, the company’s adjusted debt could decline to Rs.1.3 trillion by fiscal 2022.
S&P note, for example, that the company has a non-binding letter of intent to sell a 20% stake in RIL’s oil-to-chemicals business to Saudi Arabian Oil Co. The proposed transaction is undergoing due diligence.
“Overall, we believe the company is on track to hit its deleveraging goals, in which it targets zero reported net debt by financial year 2021.”
Moreover, future investments will likely focus on the digital and retail segments, which are less capital intensive than that of the energy sector.
S&P sees the possibility of sizable acquisitions as a risk to the underlying view on RIL, especially in the current environment where its financial buffer will likely be strengthened substantially.
“But we believe management is committed to deleveraging, and the company will likely maintain a low leverage for the time being.” fiinews.com
