Reliance Industries Limited (RIL) declared in July that it has become net debt-free. The $83-billion oil-to-telecom-to-retail giant had reported a net debt of ₹1,61,035 crore as on March 31, 2020.

Over a period of 197 days ending November 5, 2020, RIL raised ₹2,60,024 crore.

RIL’s fund-raising includes ₹1,52,055 crore equity from 13 investors, including Facebook and Google, for a 33 per cent stake in Jio Platforms; ₹53,124 crore from a rights issue in May, and ₹47,215-crore equity raised from nine investors for a 10.52 per cent stake in Reliance Retail Ventures. Also in July, BP plc acquired a 49 per cent stake in RIL’s fuel retailing business for $1billion (₹7,629 crore).

On the face of it, RIL did indeed raise funds in excess of its stated net debt, supporting its claim of net debt-free status. But is the company really net debt-free?

In an apparent rush to declare itself net debt free, RIL changed its estimate of net debt as of March 31, 2019, in its 2019 and 2020 annual reports and adopted a rather liberal definition of net debt.

RIL’s net debt as of March 31, 2019, according to its FY2019 annual report, was ₹1,54,478 crore. In the FY2020 annual report, the net debt as of March 31, 2019 was miraculously lower by ₹3,716 crore at ₹1,50,762 crore, despite there being no restatement of its FY2019 accounts! (See graphic)


RIL’s reported gross debt figure in both annual reports, as of March 31, 2019, is ₹2,87,505 crore. However, its estimate of cash and marketable securities as of March 31, 2019 in its FY2020 annual report increased to ₹1,36,743 crore from ₹1,33,027 crore in the FY2019 annual report.

This leads us to RIL’s interesting definition of marketable securities and, hence, net debt.

Bankers and analysts define net debt, that is, the effective amount of money an entity owes, as its consolidated debt minus assets that are most liquid, of stable nominal value and transparent such as cash and bank deposits. Cash is legal tender and deposits are held in banks that are regulated entities.

RIL has defined net debt as consolidated debt minus cash and marketable securities. Here, again, the company has taken liberties with the definition of marketable securities. Marketable securities are listed financial assets, including shares, bonds, debentures, preference shares, money market instruments, mutual fund units and exchange traded funds (ETFs). Liquidity is the distinguishing characteristic of marketable securities.

Deducting ‘marketable securities’, especially unlisted investments in group companies, from consolidated debt contravenes the concept of net debt because these assets do not meet the criteria of liquid and transparent assets of stable nominal value. These unlisted securities are intra-group investments.

Marketable securities

RIL’s definition of marketable securities includes its investments in two unlisted associates, Jio Digital Fibre Private Limited and Reliance Jio Infratel Private Limited, which operate Reliance Jio’s fibre and tower assets.

According to RIL’s FY20 annual report, cash and marketable securities include cash and cash equivalents of ₹30,920 crore (previous year ₹11,081 crore), current investments of ₹72,915 crore (previous year ₹71,023 crore) and other marketable securities of ₹71,424 crore (previous year ₹54,639 crore) including investments in Jio Digital Fibre Private Limited and Reliance Jio Infratel Private Limited.

Of RIL’s ₹72,915-crore current investments, those worth ₹40,993 crore are unlisted. RIL has invested ₹1,18,296 crore as equity, preference shares and non-convertible debentures in the unlisted Jio Digital Fibre and Reliance Jio . It is unclear which of these ₹1,18,296 crore investments is included in RIL’s ₹71,424 crore of “other marketable securities.” The quantum of listed securities in RIL’s “other marketable securities” portfolio is also unclear.

‘Other marketable securities’

Assuming that the entire “other marketable securities” portfolio is unlisted, ₹1,12,417 crore (₹40,993 crore plus ₹71,424 crore) or 78 per cent of RIL’s marketable securities is unlisted, or not-so-marketable after all.

RIL further states in its FY20 annual report that “if investment in RIL shares held by Petroleum Trust and Reliance Services and Holdings Limited is considered as marketable securities, the net debt shall further reduce by ₹43,294 crore to ₹1,17,741 crore.” But share prices, even those of a company as large and profitable as RIL, do not exhibit stable nominal values; share prices fluctuate. RIL shares owned by related entities are simply not the same as cash and bank deposits.

As of March 31 2020, RIL’s consolidated debt was ₹3,36,294 crore. So, after deducting ₹30,920 crore cash-on-hand and the ₹2,60,024 crore cash inflow from the recent fund raising, net debt is ₹45,350 crore. Though reported financial leverage is low after the mammoth fund-raising, RIL is not net debt free; not yet. This estimate assumes that RIL received all investment commitments from its stake sales and rights issue upfront and excludes ₹18,839 crore spectrum liabilities payable to the Department of Telecom, Jio Digital Fibre’s and Reliance Jio Infratel’s outstanding debt, ₹8,697 crore lease liabilities, and ₹106,525 crore of “other financial liabilities”.

Investors in RIL’s May 2020 rights issue are required to pay only 25 per cent of their investment upfront. The balance is payable in two instalments in May and November 2021.

Factoring in the deferred proceeds from the rights issue and the other liabilities listed above, the net debt-to-EBITDA ratio, based on annualised first half performance in FY2021, is a not insignificant at 2.44 times.