Possibly the country’s most famous brothers – The Ambani brothers, Mr Mukesh and Anil Ambani have decided to sell an asset each in their respective companies – the Mukesh Ambani led Reliance Industries Ltd. and Anil Ambani led Reliance Infrastructure Ltd. However, the sale of these assets have nothing to do with each other’s companies and are going to be done for very different reasons.
Beginning with the older brother – Canadian investor Brookfield Asset Management Company, which has significant investments in renewable power, among others, is set to acquire the East West Pipeline, earlier known as Reliance Gas Transportation Infrastructure for 13,000 crore ₹.
The Reliance Industries Ltd. (RIL) owned 1,400 km pipeline transports natural gas (which is widely used in generating electricity and for fuelling massive power plants). The pipeline connects Kakinada on the eastern Andhra coast to Bharuch in Gujarat on the west coast and was built to transport natural gas produced by RIL and British Petroleum (BP) in the Krishna Godavari (KG) basin off the east coast to western India. Reliance Industries has massive blocks in the KG basin from which it transports this natural gas, and the pipeline is also connected to other operators like Gas Authority of India (GAIL) & Gujarat State Petronet for delivery of gas to other parts of India.
However, owing to a drop in natural gas production, the pipeline was reportedly operating at only 5% of its total capacity and was running in losses. For F.Y. 2018, the total revenue generated by it was 884 crore ₹ and it racked up a net loss of 715 crores. Reliance has a total outstanding debt of 13,715 crores against the project.
What is pegged to be a game changer is the fact that 3 major projects are expected to begin in the KG Basin belt which together have around 3 trillion cubic feet of discovered gas resources, where companies are investing about 40,000 crore ₹ and this can change the fortunes of the pipeline operator.
The deal is structured such that Reliance will be entitled to transport a certain amount of gas against any outstanding unutilised capacity payments and will be entitled to participate in the net earnings of the pipeline. Add to that, RIL will also get the right to buy back the pipeline at the end of 20 years for a value of 50 crore ₹.
While the monetising of Mukesh Ambani’s pipeline project seems to be a good business decision, younger brother Anil Ambani’s asset sale is one that is brought about by need.
The Anil Ambani led Reliance Infrastructure (R-Infra) has entered into a binding agreement with Singapore-based Cube Highways & Infrastructure for sale of 100% stake in the Delhi-Agra Toll Road. The total proceeds expected from this deal is little over 3,600 crore ₹ (roughly 517 million $) and in addition, arbitration claims pending with National Highway Authority of India (NHAI) to the tune of 1,200 crores for the project, if won, will flow directly to Reliance Infrastructure.
R-Infra will utilise the proceeds of this transaction entirely to reduce its debt, which will be slashed by 25% to less than 5,000 crores. The developer has a road portfolio of around 11 assets including the Delhi-Agra project, which it is looking to divest in line with its strategy of monetising all non-core businesses.
Shares of R-Infra slipped nearly 4% intraday after the announcement, and has been in the red ever since, till the close of today’s trade as well.