Reliance industries : A “Zero” Debt company

In the last 15 years, domestic markets have witnessed a host of events ranging from the global financial crisis of 2008 to COVID-19 of now. Over the years, the sectoral representation in the Nifty 50 has undergone some major changes, reflecting the changes in the economy. During this period Reliance Industries have emerged as the top-heavy weighted companies in benchmark with 13.2% of the weight. Read more to find out why.
Reliance Industries Limited (RIL) is India’s largest private sector company, headquartered in Mumbai. Reliance owns businesses across India engaged in energy, petrochemicals, textiles, natural resources, retail, and telecommunications. As the size of each subsidiary grows in sheer amount Reliance have been initiating a “re-amalgamation” process within the company by spinning off assets(this means creating division of a parent company through the sale or distribution of new shares) and balance sheets to form an umbrella of independent business groups. RIL - grocery, lifestyle and fashion, digital, and the e-commerce business JioMart - have been parked under Reliance Retail Ventures Ltd (RRVL). TV18 Broadcast, Hathway Cable & Datacom and Den Networks with Network18 Media & Investments will in itself bring revenue of Rs 8,000 crore.
Jio Platforms Ltd (JPL) has become the parent of Reliance Jio Infocomm, and applications like MyJio, JioTV, JioCinema, JioNews and JioSaavn. The parent company(RIL) has infused Rs 1.08 lakh crore in it to build it and claim high valuations in the market In August 2019, RIL planned to sell 20% stake in its refining and petrochemicals business for $15 billion to Saudi Aramco. As part of the deal with RIL, Saudi Aramco will also supply 500,000 barrels per day of crude oil to RIL's twin refineries in Jamnagar. This deal is proposed to be settled by the end of 2020. Since 2016, Jio has become India’s largest carrier, with almost 400 million subscribers. But Ambani’s push for the digital revolution in India has caused him to incur enormous debts. In May 2020 Ambani made almost 4 deals in 4 weeks with leading technology investors, including Facebook, Silver Lake, Vista Equity Partners and General Atlantic. So why did Facebook invest in Reliance? Reliance is the only Indian firm to compete with global peers in this fast-growing domestic market. This 9.99% stake in the company, makes Facebook the largest minority shareholder in Indian telecom and India’s largest FDI(Foreign Direct Investment). Jio benefits from this as Facebook makes a credible Board and also helps invest further in its network. They have launched Jio Mart using WhatsApp’s Business app to help small businesses(like Kirana stores) reach their customers easily. WhatsApp Pay and JioMoney could also merge in to offer a seamless online shopping experience. Private equity firms Silver Lake and Vista Equity Partners have invested in Jio Platforms. Silver Lake is one of the largest, American multinational private equity firms focused on large scale investments in technology, technology-enabled and related industries. This investment by Silver Lake is further testament to the world-class digital platform that Jio has built, powered by leading technologies, such as Broadband connectivity, Smart Devices, Cloud and Edge Computing, Big Data Analytics, AI and IoT, Augmented and Mixed Reality and Blockchain. In return, Silver Lake being a private equity firm makes money through management fees and advisory services So what are the advantages of independent business groups?
● They will have separate balance sheets earning filings and governance structures.
● The liability of one company will not affect the other.
● The investor will get the freedom to choose the sector they want to be in, rather than investing in a bouquet of companies.
Finally, Reliance had proposed to raise Rs 53,125 crore through its biggest ever rights issue from May 15th to June 3rd. This will put Ambani’s Reliance on the move to make it debt-free and one of the biggest tech giants globally. As of now, Reliance seems to have an upper hand in the market so it is a warning for rivals to start looking out.