In retrospect, I tackled the last question prematurely in October 2016 when Reliance was shouldering 13% to 14% 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 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 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, Ambani told shareholders. In other units, too, there's little left to do. Ambani is selling 20% 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 Ambani is doing the right thing by taking Aramco’s money.
A $22 billion reduction in net debt (to reach zero) will require more than Aramco’s cash. Reliance has shoved some borrowings into an infrastructure trust together with telecom tower and fiber assets. It's also taken on BP Plc as a partner in Indian fuel retailing and oil exploration. If Ambani finds deep-pocketed partners for general retail, as well as for telecom, reaching his goal will be simple enough. Banks, however, will rue the end of his debt-fueled expansion if loan syndication deals are only for refinancing and not new money.
As for shareholders, Ambani is telling them that hitting zero net debt will come with higher dividends, bonus issues and other goodies “at a more accelerated pace than any time in our history.” But investors will struggle to reinvest the cash returned by Reliance. For one thing, India’s slowdown is deepening. For another, the company’s digitization blitz is causing unpredictable disruption. A day after Reliance told shareholders that they could watch movies on their new home broadband the same day as the cinema release, shares of PVR Ltd., India’s biggest theater exhibitor, fell more than 8% intraday.
Several Indian business leaders have sounded the alarm on the Indian economy’s increasingly choppy waters. While Ambani may or may not share their concerns, his cautious actions can only serve to bring the storm closer.