How Jio Platforms stake significantly helps Mukesh Ambani’s RIL amid weaker operations this year

So far Reliance Industries has managed to raise Rs 1.52 lakh crore from investors, Rs 53,000 crore from the rights issue, and Rs 7,600 crore from BP PLC for the fuel retail joint venture.

Mukesh Ambani-led Reliance Industries Ltd’s (RIL) asset monetisation, which saw the oil-to-telecom major sell 33% stake in Jio Platforms, should significantly improve the company’s credit quality. This would mean that RIL’s credit quality would improve despite operations trending weaker than anticipated for the current fiscal year, said global rating agency S&P Global. Mukesh Ambani lured in global investors, including Mark Zukerberg’s Facebook and Alphabet’s Google, to invest a total of Rs 1.52 lakh crore in the digital venture. S&P Global, currently rates RIL’s local and foreign currency instruments as BBB+ with a stable outlook.

So far Reliance Industries has managed to raise Rs 1.52 lakh crore from investors, Rs 53,000 crore from the rights issue, and Rs 7,600 crore from BP PLC for the fuel retail joint venture. Key investors, other than Facebook and Google include, Saudi Wealth Fund, KKR, and General Atlantic. “RIL’s deleveraging could exceed our expectations, given the extent and magnitude of its asset monetization,” S&P Global said. According to S&P Global, RIL’s  adjusted debt could be less than Rs 1 lakh crore by the end of this financial year. “This is better than our base case, which already assumes a sharp decline in adjusted debt to Rs 1.7 lakh crore by fiscal 2023, from Rs 2.7 lakh crore in fiscal 2020,” it added.

With the reduction in debt, S&P Global expects the credit quality of RIL to improve over the next two-three years, despite the earnings being less than expectations. “Meanwhile, even if the company’s credit metrics strengthen further, the ratings would likely remain at ‘BBB+,’ given India’s transfer and convertibility assessment of ‘bbb+,” S&P Global said.

Although the lockdown hit business domestically as well as globally, RIL was much better placed than peers. The largest private listed company in India reported a 31% jump in net profit despite a 42% fall in revenue. However, the digital services arm generated a revenue of Rs 21,302 crore. Recovery in earnings could be slow, according to S&P Global, which expects RIL’s fundamentals to remain supported by ongoing strength in the digital division and the gradual improvement in its energy segment. “In our view, RIL’s first-quarter results demonstrate the benefits of having diversified businesses during volatile times,” it added.