Mukesh Ambani, the chairman of India's Reliance Industries. Photo: AFP

The Covid-19 pandemic has led to an economic downturn, forcing many companies to cut corners to stay afloat, but oil-to-telecom conglomerate Reliance Industries is defying that trend.

The company announced on Friday that it has become net debt-free. Reliance Industries chairman Mukesh Ambani said, “I have fulfilled my promise to the shareholders by making Reliance net debt-free much before our original schedule of 31st March 2021.”

In March, Reliance Industries had a debt of 1.61 trillion rupees (US$ 21 billion) resulting from of its massive capital expenditure plan between 2012 and 2018, which included investments in the telecom and digital business and a $16-billion investment in the core petrochemicals business.

However, in the past two months the company raised 1.68 trillion rupees ($22 billion) through a 24.7% stake sale in its digital arm Jio Platforms and its rights issue. Jio Platforms, which includes India’s leading mobile phone services company, Reliance Jio, has raised 1.15 trillion ($15.8 billion) by selling its stake to a clutch of global investors including Facebook, marquee private equity firms, and sovereign wealth funds in Saudi Arabia and the UAE. Out of these 11 deals, Facebook committed the biggest capital infusion of 436 billion rupees for a 9.99% stake in Jio Platforms.

The company has included the entire proceeds of the 531-billion rupee ($6.9 billion) rights issue, which was subscribed 1.6 times, in its calculation. Though this share offering is the largest in Indian corporate history, Reliance Industries has actually received only 25% of the issue proceeds (133 billion rupees) in the current fiscal and the remaining 75% will come in the next financial year.

Last August, Mukesh Ambani, India’s richest man, had told shareholders that Reliance Industries would be a zero net debt company before March 2021. Back then, the company was banking on its plan to sell a 20% stake in its oil-to-chemicals division to Saudi Aramco. The $15-billion deal was delayed due to legal hurdles and later the Covid-19 pandemic, and its impact on the oil business slowed the process further.

While doubts were being raised regarding Reliance Industries’ debt-reduction plan, the company changed tack and decided to divest in Jio Platforms instead. The unprecedented fundraising spree over the past two months has helped the conglomerate meet its debt-reduction targets.

Mukesh Ambani’s announcement regarding the company’s debt-free status sparked a rally in the stock market. Shares of Reliance Industries on Friday jumped over 6% and the company’s market valuation crossed 11 trillion rupees ($144 billion). It is the first Indian firm to reach that milestone.

However, there exists a wide gap between Reliance Industries’ reported net debt and estimates of its debt by credit rating agencies and brokerage analysts. For this financial year analysts at CLSA, Bernstein Research, Kotak Securities, Goldman Sachs and Nomura pegged the company’s net liabilities at between 2.4 trillion and 2.6 trillion rupees. They have included deferred spectrum liabilities and capex creditors to arrive at this estimate. If the company concludes its deal with Saudi Aramco, then it will be much closer to being debt-free even in the eyes of analysts and rating agencies.