Does Mukesh Ambani see dark clouds gathering on the horizon? From his message to shareholders, it doesn’t look like India’s richest tycoon is worried. But his actions may reveal more than his words.
At Monday’s annual general meeting, the chairman of Reliance Industries Ltd. was brimming with optimism. Not only did he endorse Prime Minister Narendra Modi’s vision of bumping up annual GDP by 80 per cent in five years to $5 trillion, he even forecast a $10 trillion Indian economy by 2030. It’s not only possible but “inevitable,” he said.
Something doesn’t add up. If the outlook is so rosy, why is Mr Ambani hitting the brakes on a seven-year, $100 billion investment spree across refining, petrochemicals, telecom and retail? While a breather after such frenzied activity may be understandable, why does he want Reliance to be a zero-net-debt company in 18 months? What will it mean for the more than 100 banks and financial institutions around the world that provide India’s largest company and its subsidiaries with billions of dollars – and yen, and rupees – in financing and refinancing? Above all, what will Reliance’s deleveraging mean for India?
In retrospect, I tackled the last question prematurely in October 2016 when Reliance was shouldering 13 per cent to 14 per cent of the entire investment by India’s top 1,250 listed companies as well as Indian Railways and state-owned electricity boards. My conclusion then was that if Mr Ambani took a yearlong vacation, India’s growth outlook could dim. What I didn’t anticipate was that starting a 4G mobile network with lifetime free voice calls and dirt-cheap data was just the beginning rather than the end of Mr Ambani’s telecom ambitions. The goal of Reliance Jio was to acquire at least half of India’s 1 billion-plus mobile customers, and that required continued spending.
Now that he’s reached 340 million subscribers, though, the endgame is probably not more than a few quarters away. And that’s problematic for the economy. The rest of India Inc. is paralyzed by debt and self-doubt; consumers are overstretched; and so is the government. A holiday for Reliance would remove from play the only domestic balance sheet with unspent firepower.
The investment cycle for the Jio network is complete, Mr Ambani told shareholders. In other units, too, there’s little left to do. Mr Ambani is selling 20 per cent of the family jewel – Reliance’s refining and petrochemical operations – to Saudi Arabian Oil Co. even though the goal is more strategic than just shedding debt. As my colleague David Fickling wrote, the $75 billion enterprise value at which Aramco is investing is a lot higher than the business is worth. Saudi Arabia wants takers for its surplus oil in a world of electric vehicles, and if Reliance’s refinery can provide a profitable outlet for 500,000 barrels per day of Saudi crude by converting it into jet fuel and polymers, then Mr Ambani is doing the right thing by taking Aramco’s money.