When Reliance announced in its 2019 AGM that it would turn zero net debt by March 2021, most analysts dismissed the idea as impractical. What Reliance has shown in the last couple of months is that the target of becoming zero net debt was not only practical but almost within reach. Let us first understand the issue of net debt and how it pans out for Reliance Industries, before putting the series of deals at Reliance Jio in context.
RIL has only spoken about becoming zero net debt by March 2021. RIL has a gross debt of Rs.336,000 crore but against that it also has free cash of Rs.175,000 crore. That leaves the company with a net debt burden of Rs.161,000 crore as of March 2020. It is this figure of Rs.161,000 crore that RIL is trying to reduce to zero by March 2021. It is in this context that the monetization of Jio Platforms must be viewed.
Jio helps monetize close to Rs.116,000 crore
It all began with the sale of stake to Facebook. Once that was completed, Jio Platforms sold chunks of its stake to a slew of global PE funds and to some of the most reputed sovereign funds across the world. Within a span of just 8 weeks, RIL has managed to sell 24.71% stake in Jio Platforms for an overall consideration of Rs.115,729 crore. The table below captures the stake sale to various investors and the corresponding valuation.
Data Source: www.ril.com
The Facebook stake sale was at a much lower valuation but that is more because it was a strategic partnership and RIL was likely to benefit long term from the alliance. However, all the other deals were around the same overall valuation of $65 billion for Jio Platforms.
How will Jio monetization help RIL become zero debt?
How will Reliance reach the magic figure of Rs.161,000 crore by Mar-21? Had Reliance collected the full proceeds of the Rs.53,125 crore rights issue, it would have become zero net debt by now. However, RIL has only collected 25% of the rights amount in the first tranche with the balance to be paid in May 2021 and November 2021. Here is how the shortfall will look like.
With just Rs.31,990 crore left to become zero net debt, RIL may not have much of a problem. It is unlikely that RIL would dilute much more than the current level of dilution. One way to bridge the gap is to realize the proceeds of Rs.25,000 crore from sale of towers to Brookfield and Rs.7000 crore from the stake sale to BP. The second option is to negotiate a smaller stake or a lower valuation for the chemicals and refining business stake sale to Saudi Aramco. That could easily see the zero net debt target through without too much difficulty.
Watch how RIL has transformed the digital space in India
The Jio platform monetization has led to a string of digital deals in India. Amazon is talking to Bharti Airtel for a 5% stake for a consideration of $2.1 billion. Despite the AGR issue, Google is interested in picking up a stake in Vodafone Idea to get a slice of the Indian digital market. Today, if you look at the top five companies in terms of market cap, RIL and Bharti are actually digital companies. Even if you look at Jio in isolation, its valuation of $65 billion will rank it in the top-5 in India. That is a big shift that Jio Platforms has triggered for digital India.