Oil plunged the most in 29 years on Monday as Saudi Arabia and Russia vowed to pump more in a struggle for market share. The slump comes just as the coronavirus is spurring the first decline in demand in more than a decade. That raises questions about whether Ambani’s flagship Reliance Industries will be able to cut net debt to zero by early 2021, as he has pledged. The plan hinges on a proposal to sell a stake in the group’s oil and petrochemicals division to Saudi Arabian Oil, the world’s biggest crude producer.
While the coronavirus has curtailed some of tech giant Alibaba’s businesses, the damage has been mitigated by increased demand for its cloud computing services and mobile apps.
Reliance Industries, by comparison, has no such silver lining. The Indian conglomerate’s shares plunged 12% on Monday, the most since 2009, extending this year’s decline to 26%. Markets in Mumbai were closed Tuesday for a local holiday. Alibaba’s American depositary receipts have slipped 6.8% so far in 2020.
Few of the world’s billionaires fared well in Monday’s collapse as the S&P 500 Index and Dow Jones Industrial Average each plunged more than 7.5%, the most since the 2008 financial crisis, threatening to end the longest bull market in history. Jeff Bezos and Bill Gates lost more than $5 billion each in the rout.
But no one did worse than those whose fortunes are underpinned by oil. Wildcatter Harold Hamm’s fortune was cut almost in half to $2.4 billion and fellow oil magnate Jeff Hildebrand lost $3 billion, bumping both from Bloomberg’s 500-member wealth ranking.
In a pivot toward new businesses such as telecommunications, technology and retail, Ambani’s Reliance Industries has piled on billions of dollars of debt over the years.
It spent almost $50 billion — most of it funded by borrowings — to build Reliance Jio Infocomm, which became India’s No. 1 wireless carrier within about three years of its debut. As the mobile venture took off, Ambani also unveiled plans for an e-commerce empire to rival Amazon.com in India.
Addressing concerns over the liabilities, Ambani pledged in August to cut the group’s net debt to zero from about $21 billion as of last March. The Aramco deal is crucial to that plan for which Reliance Industries has valued its oil-to-chemicals division at $75 billion including debt, implying a $15 billion valuation for the 20% stake that’s for sale.
Signs of a potential delay to that deal unnerved some investors, hammering the stock since it touched a record high on December 19.
Reliance Industries expected the Aramco transaction to be completed by March, but people familiar with the matter said in February that talks were still ongoing to bridge differences between the two parties over the deal’s structure.
Adding to the uncertainty, Indian Prime Minister Narendra Modi’s administration has petitioned a court to halt the proposed stake sale, threatening a key source of funds needed to pare net debt.
But Ambani, 62, may soon bounce back, said Harish H V, managing partner at ECube Investment Advisors in Bengaluru, India.
“The game isn’t over,” he said. “Ambani has successfully built a robust business model which would keep him in the game. Moreover, his telecom business will start yielding results in coming years.”