January 2, 2020 / 3:23 AM / 7 months ago

Breakingviews - Mukesh Ambani’s empire will be cast in fresh light

Mukesh Ambani, Chairman and Managing Director of Reliance Industries, attends a convocation at the Pandit Deendayal Petroleum University in Gandhinagar, India, September 23, 2017.

MUMBAI (Reuters Breakingviews) - Data will be the new oil for Reliance Industries in 2020. Boss Mukesh Ambani, stands to benefit from the 21st century mantra in two important ways as he carves up his sprawling $130 billion conglomerate. He would fulfill a bold promise to significantly cut debt and achieve a higher, tech-like valuation from investors. India’s richest man is overseeing the biggest overhaul of his company since it was split in 2006 as part of a family feud. A plan to be nearly free of net debt by March 2021 involves paying off some $22 billion. That should also help achieve another implicit goal: a punchier valuation than 15 times the earnings analysts are expecting. Some large deals to achieve the goal have been sketched out. Reliance is aiming to pocket about $15 billion from offloading a 20% stake in its refining and petrochemicals arm to Saudi Aramco. Existing cashflow also will be used, along with proceeds from a desired sale of optical fibre assets. The real deal for 2020, however, will be buying a stake in its recently reorganised technology business. Ambani unveiled plans in October to house all its digital services, including music, TV and cinema apps, under the same roof as its upstart telecom operator Jio, which has signed up some 365 million subscribers in just three years. To make the tech holding company more attractive, Jio’s debt is being shunted up to the parent of the fast-growing mobile operator with a stronger balance sheet. In return, Jio will conduct a rights issue of optional convertible preference shares to the holding company. The financial engineering implies an enterprise of up to $70 billion for the business, according to CLSA analyst Vikash Kumar Jain. That was more than 50% higher than his sum-of-the-parts estimate in October. Once it is less indebted and more neatly organised, it should be easier for investors to consider Reliance as less of a sluggish oil and telecom behemoth and more like, say, Amazon, especially with its potential to bring an enormous, mainly bricks-and-mortar retail business online. It won’t command the same heady valuation of 65 times expected earnings, but Alibaba’s 24 times is within reach for Ambani.

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