What the oil marketing stake sale to BP entails
The deal between Reliance Industries and British Petroleum was sealed on July 09, 2020. Under the terms of the deal, BP will pay $1 billion or approximately Rs7,500cr to Reliance Industries for a 49% stake in the oil marketing JV. Reliance will hold 51% in the JV, Reliance BP Mobility Limited. The JV will set up fuel dispensing stations across India, where fuel will be sold under the brand of Jio-BP. They will target direct and digital sales of fuel and also leverage on the digital platform created by Reliance.
The real edge to the JV in a commodity like oil will come from differentiated fuels, lubricants and advanced low-carbon mobility solutions for customers. Towards this exercise, BP will bring in its vast global expertise and its global legacy. The opportunities are huge. It is estimated that over the next 20 years, India will be the fastest growing fuel market in the world. The number of passenger cars will grow 6-fold while the number of fuel stations will grow 4-fold to 5500 stations in next 5 years. The JV will focus on automobile and aviation fuel but, more importantly, the aim is to offer cleaner, low-carbon fuel solutions.
It all began with the Jio stake sale
In the midst of COVID-19, the one set of deals that really defined Reliance Industries was the way it managed to place equity in Jio Platforms with global marquee investors. The table below captures a gist of how these shares were placed and at what valuations.
|Sale of Jio Stake||Stake Sold||Amount (Rs cr)||Implied Valuation (Rs cr)|
|Silver Lakes - 2 Rounds||2.08%||10,203||4,90,529|
|General Atlantic Partners||1.34%||6,598||4,92,388|
|L. Catterton Fund||0.39%||1,895||4,85,897|
|PIF, Saudi Arabia||2.33%||11,400||4,89,270|
As can be seen from the above table, RIL has managed to monetize a little over quarter of its stake in Jio Platforms raising Rs117,624cr in the process. Barring Facebook, all the other deals are pure private equity deals and hence they will have to be looked at separately. If you look at the private equity deals, the valuation assigned is close to $65 billion. This valuation positions the digital business alone in the top-5 in India in terms of market cap. Of course, the actual market value will only be evident once Jio Platforms is listed at a future date. But for now, Jio has provided the start for RIL to become zero net-debt.
Rights issue and the BP sale adds to the near certainty of zero debt
The BP sale is significant because it makes the RIL journey to zero net-debt, a lot more certain. Of course, RIL has time till March 2021 to meet its commitments towards becoming zero-debt, but that is more academic in nature. As of March 2020, the net debt of Reliance Industries (net of cash and equivalents) stands at Rs161,000cr. Till date, 25% of the rights issue proceeds and Rs7,500cr from the oil marketing JV sale to BP is confirmed. This is in addition to what has already been raised from the Jio stake sale. Here is how the net position looks at this point of time.
|Net Debt as on Mar-20||Rs161,000cr||Net of cash and equivalents|
|Less: Jio stake sale proceeds||Rs117,624cr||25.10% monetized till date|
|Less: Sale of JV stake to BP||Rs7,500cr||49% stake sale to BP|
|Less: 25% of rights issue||Rs13,281cr||Balance receivable in 2021|
|Gap to become zero debt||Rs22,595cr||Needs to be raised|
Clearly, Reliance has a gap of just Rs22,595cr to become zero net-debt with another 8 months to go. There are more deals in the pipeline. The sale of Jio Towers to Brookefield of Canada is expected to raise Rs26,000cr. In addition, the 15% stake sale in the refining and chemicals business to Saudi Aramco is expected to raise another Rs110,000cr. Even if these deals are executed partially or at lower valuations, RIL should be comfortably zero debt by March 2021. In the midst of aggressive fund raising, the BP sale has just made the zero debt story a lot more certain!