Reliance Industries, it appears, is doubling down on its mega balance sheet deleveraging plan and becoming net debt free by March 2021 – despite difficult market conditions.

Close on the heels of its announcement last week of selling 10 per cent stake in Jio Platforms for ₹43,574 crore, the company on Tuesday announced its plan to issue rights shares to existing shareholders. As of December 2019, Reliance Industries net debt (debt less cash) is said to be about ₹1.5-lakh crore. This will be the first rights issue by the company in 29 years. The last major corporate action on the share capital – a 1:1 bonus issue – happened in late 2017.

Price, size announcement on Thursday

Details of the rights issue – how much will be raised and at what discount to the market price – will be known on Thursday along with the results of the March 2020 quarter and FY20. What can be said though is that the company will not be selling its shares cheap.

From its peak of ₹1,610 in mid-December 2019, the RIL stock had crashed to ₹884 on March 23. But within a month, it has gained more than 60 per cent despite the turmoil in the oil market to its current price of ₹1,428. The stock is now only about 11 per cent lower than its peak price. The consolidated trailing 12-month price-to-earnings ratio of the stock is about 19 times, in line with its three-year average.

A good part of the strong rally over the past month or so is attributable to the Facebook-Jio Platforms deal that has assuaged to a fair extent doubts about the company’s debt-reduction plans which had come under a cloud following the global oil price crash. The oil crash could not only affect RIL’s refining and petrochemicals businesses but more importantly could also delay or put off Saudi Aramco’s plan to buy 20 per cent in RIL’s refining and petrochemical business. The Saudi Aramco deal was expected to give RIL about $15 billion (about ₹1-lakh crore), but there is growing scepticism about this deal now.

Balance sheet restructuring plans

But the rapid action over the past few weeks – the Facebook deal and the proposed rights issue indicates that RIL plans to press ahead with its balance sheet restructuring plans, despite the setbacks in the hydrocarbons business. How much money in aggregate from the Facebook deal and the rights issue will be used to repay debt is unclear now. But it can be expected to be significant enough to move the needle and calm concerns.

The promoter holding (the Mukesh Ambani family and related entities) in the stock as of December 2019 is 50.03 per cent, with public shareholding at 49.97 per cent. With the promoters almost certain to participate in the proposed rights issue, the shareholding of the existing public shareholders will get diluted if they do not participate in the issue. Some may baulk at the relatively high price (compared with a month ago) due to the recent rally in the stock, but the final price will depend on the discount offered to the current market price. That will be known in a couple of days.

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