RIL has three options to lower debt: 1) selling equity stakes in key businesses; 2) slowing down investments and repaying the debt by generating more profits (free cash flow) and 3) raising equity at the parent level.
Reliance has used the first two options recently by selling a 10% stake in Jio to Facebook. The Saudi Aramco deal was also a part of the same strategy. RIL has also lowered its capital expenditure intensity in the past two quarters. The company is using the third option in the form of the upcoming rights issue.
Although the company has not yet given an indication of the size of the issue, it is expected to be 2-12% of equity at a 5-20% discount to the current market price.
Key takeaway:
Reliance Industries has an overall debt of Rs 1.53 lakh crore. It is charting a course to go completely debt-free in the near future to meet the expectation set by the Chairman, Mukesh Ambani in the last AGM.
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