Back in 2008, in the midst of a worldwide Financial Crisis and the subsequent recession was when RIL added another processing plant to its refinery in Jamnagar making it the world’s largest with an aggregate refining capacity of 1.24 million barrels (197,000 m3) of oil per day. It was not a circumstance that Mr. Ambani relished, but it was also not one that would have been unfamiliar. “When in 1999 we started our first refinery at Jamnagar, we saw a recession globally and when we are about to start our second refinery, history is repeating itself,” he said then.
As destiny would have it, it was June 19, 2020, right in the middle of a pandemic when another recession looms large upon us, when Mr. Ambani announced that his oil-to-telecom conglomerate, Reliance Industries Limited (RIL, BSE: RELIANCE) is now net debt-free after having raised INR 1.75 trillion against its net debt of INR 1.61 trillion in under two months. Ambani had publicly announced the goal to make RIL debt-free during the company’s annual general meeting in August last year. The aim was to get there by March 31, 2021. We try to analyze this capital raise by breaking down the capital raise into its 3 components i.e. the stake sale in Jio Platforms, the rights issue by RIL and the stake sale in petro-retail JV to BP.
(Photo Credits: Dhiraj Singh/Bloomberg via Getty Images)
The major chunk of the money to clear debt came from selling stakes in RIL’s young telecom and internet venture, Jio Platforms. Since April 22, Jio Platforms has raised INR 115,693.95 crore from 10 investors, including Facebook. In total, RIL has sold off a 24.7% stake in Jio Platforms through what it says is “the largest uninterrupted fundraising by a company anywhere in the world.”. The parent company also raised INR 53,124.20 crore through a rights issue of its shares. “Along with the stake sale to BP in the petro-retail JV, the total fundraising is in excess of INR 1.75 lakh crore. Our net-debt was INR 161,035 crore, as on 31st March 2020. With these investments, RIL has become net debt-free," RIL said in a release.
Stake Sale in Jio Platforms
What started off as a minority investment of INR 43,574 crores and an acquisition of a 9.99% stake in Jio Platforms Limited (JPL) by Facebook, Inc. (NASDAQ: FB) was followed by a series of 10 other minority investment by private equity giants L Catterton and TPG and one of the world's largest sovereign wealth funds, Saudi Arabia’s PIF. RIL, the oil-to-retail-to-telecom conglomerate, has now shed 24.7 percent stake in JPL and raised INR 115,693.95 crore from some of the world’s top technology investors. For some comparison, India's start-up ecosystem raised INR 1.10 lakh crore last year, in what was its best year.
The table below explains all the investments made into Jio Platforms.
(Credits: Fortune)
So, what is driving investors by the droves to JPL? To start with, JPL ticks a number of boxes such as proven execution, a nearly debt-free capital structure, and being on the right side of regulation. RIL has tapped into this heightened interest for technology investments by positioning JPL as a digital platform company. Investors dream of a day when customers will talk, shop, bank, read, write, eat, watch, and listen to digital content and book a holiday using a Jio app. The Facebook connection adds heft since its vast resource of user data and preferences can potentially be used to target customers effectively.
The telecom arm Reliance Jio, which is a subsidiary of JPL, has grown to become one of the largest telecom networks with a subscriber base of 387 million in a short span of three years. In its splendid journey, it disrupted the entire telecom sector. Many telecom companies either stopped their services, merged with competitors, or filed for bankruptcy.
Rights Issue by RIL
RIL raised INR 53,124.20 crore from a rights issue, the first in three decades by the company. A rights issue refers to the company’s decision to invite existing shareholders to purchase additional new shares.
As part of the rights issue, existing shareholders picked up one new share for every 15 they own for INR 1,257 apiece – a 14% discount on the closing price on April 30. The rights issue, which was open between May 20 and June 3 was subscribed 1.59 times, becoming the largest-ever in India and the biggest in the world by a non-financial entity in the last 10 years.
“The success of RIL’s rights issue, seen in the context of the prolonged nationwide lockdown necessitated by the COVID-19 pandemic, is also a vote of confidence, by both domestic investors, foreign investors, and small retail shareholders, in the intrinsic strength of the Indian economy," said Mukesh Ambani, chairman of RIL.
BP seals the deal
The Competition Commission of India (CCI) has approved the deal between Reliance Industries Ltd (RIL) and BP for fuel retailing in India. This deal was announced in August 2019 when BP and RIL said that they would form a new joint venture that will include a retail service station network and aviation fuels business across India.
This joint venture called Reliance BP Mobility Ltd (RBPML) builds on Reliance's existing Indian fuel retailing network and on the aviation fuel business. Reliance Industries Ltd. will receive INR 7,000 crores ($990 million) from UK's BP Plc in a deal announced last year that gives the European oil major a 49% stake in the Indian conglomerate’s fuel retail business.
Ambani’s Future Plans for RIL and Jio Platforms
This may not be the end of RIL’s fundraising spree, Ambani hinted in a statement today. “We have received strong interest from strategic and financial investors in our consumer businesses, Jio and Reliance Retail,” he said. “We will induct leading global partners in these businesses in the next few quarters.”
India’s richest man added that he plans to publicly list both Jio Platforms and Reliance Retail within the next five years. “With these initiatives, I have no doubt that your company will have one of the strongest balance sheets in the world.” Given its track record, it would hardly be a surprise if that happens much sooner.
Dilip Mishra is a B.Com (Hons.) graduate from the University of Delhi and has previously worked with S&P Global Market Intelligence as a Data Researcher.