August 12, 2019 / 11:47 AM / 7 days ago

Breakingviews - Aramco stocks Reliance’s war chest for disruption

A woman walks past a poster of Reliance Industries installed outside the venue of the company's annual general meeting in Mumbai June 7, 2012.

MUMBAI (Reuters Breakingviews) - India’s richest man is stocking up his disruption war chest. Mukesh Ambani says Reliance Industries intends to sell 20% of its oil-to-chemicals business to Saudi Aramco, at a healthy $75 billion valuation. At Monday’s annual shareholder extravaganza, the tycoon announced more telecoms plans and ideas to shake up retail too. The Aramco sale hints at how far he can - and will - go.

Ambani, whose Jio brand became India’s largest mobile company by subscribers in under three years, says he will offer ultra high-speed, fibre broadband from September. It won’t be free, as much of Jio was at first, but that reflects less to disrupt, with just 18 million existing fixed-line internet connections. The tycoon dazzled with a touch of 3D home shopping too.

The cost of big ambitions has added up, though. Ambani’s nearly $40 billion telecom foray coincided with big spending on refining and petrochemical projects, and pushed $102 billion Reliance to its limits. Financing costs, including interest expenses, more than doubled in the 12 months to March from the previous year, pushing net debt up to $22 billion.

Ambani has given shareholders new reason to cheer, however. He plans to list the telecom and retail business within five years. With most of the big spending out of the way, he promises the group will hit zero net debt within 18 months. Implied proceeds of $15 billion from the Aramco deal will be one leap, helping the Saudis secure a lucrative market for their crude too. Ambani agreed last month to offload telecom towers to Canada’s Brookfield Asset Management in a $3.6 billion deal.

There is plenty more that can be unlocked. Selling an Aramco-sized stake in Reliance’s retail business, the country’s top bricks-and-mortar outfit, could deliver further proceeds of more than $8 billion, based on a sum-of-the-parts valuation from analysts at CLSA. And even without mega-deals, existing businesses generate enough cash to make the deleveraging target achievable.

Monday’s message was clear. Ambani is willing to loosen his grip on his crown jewels to realise his vision. That has precedent. Rival Jeff Bezos of Amazon owns just 16% of his New York-listed empire. Ambani and his affiliates still own almost half of Reliance: that leaves India’s newest consumer king with plenty in reserve. 

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