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Hurdles Mount as Reliance Industries Limited Tries to Become Debt-Free

Professor of Financial Economics and Part-time Value Investor, Transfin.
Feb 24, 2020 1:36 PM 2 min read

Mukesh Ambani-led Reliance Industries Limited (RIL), had in August last year, announced its plans to sell its 20% stake in its chemicals and refining business to Saudi Arabian oil giant, Saudi Aramco in a $15bn deal. It also announced the 49% stake sale in the company's network of petrol pumps and aviation fuel facilities to UK's BP.


The deals were expected to generate an inflow of ₹1.15L cr and were part of Ambani's plan to make the company a zero-net debt firm in 18 months, by March 31st, 2021. 


However, Ambani's plan to make Reliance Industries debt-free by 2021 hit a massive roadblock when the government filed a petition in the Delhi High Court seeking to block RIL's plans of selling a 20% stake in its oil-to-chemicals (O2C) business to Saudi Aramco.


The deal, if it doesn't go through, would threaten a key source of funds needed by Reliance to pare liabilities. To top this, Reliance Industries is now facing unfriendly tax proposals that could hit its businesses. 


Here's a look at four challenges Reliance Industries Limited is currently facing:


Reliance Industries Limited Saudi Aramco


Delay in Aramco Deal

Reliance Industries expected to complete the Aramco transaction by March 2020 subject to due diligence and regulatory approvals.  


In January, Reliance reported that the talks with Aramco were making “good progress". However, it also said that a definitive pact is still a few months away.


Income-Tax Investigation

The tax department has widened a probe into the Ambani family members who have been said to have evaded tax. 


The investigation is based on information the government received from French authorities in 2011 about 700 Indians who had accounts at HSBC Holdings Plc’s Swiss branches.


Protective Tariff Scrapped

Finance Minister Nirmala Sitharaman in the Union Budget 2020 said that the government is cutting import duties for purified terephthalic acid. To help ensure the easy availability of the commodity at competitive prices. Reliance industries Limited is the largest producer of purified terephthalic acid in the country - a chemical used to make polyester yarn. 


Tax on Investment Trusts

The Union Budget 2020 also proposed a change to dividend distribution tax (DDT) - a step that could slow efforts of companies, including Reliance Industries, to raise funds through selling units in investment trusts.


Reliance has been trying to raise funds and pare debt by selling a stake in trusts that hold its telecom towers and optical-fiber network.


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