It has been 6 months since India’s Richest man, Mukesh Ambani put forth a road map of making Reliance Industries Limited (RIL) debt free by early 2021 but has quite a few hurdles owing to the government.
Administration under Prime Minister of India, Narendra Modi petitioned a court that the sale of initiated by RIL to the Saudi Arabian Oil Company should be halted which has put a damper in raising the funds to pare liabilities.
Additionally, the unfriendly tax proposal is said to affect the company as well.
Since reaching a record time high in December, the company’s share price has dropped by almost 9%.
Let us take a look at the reasons that may postpone RIL’s Debt-Free milestone.
Change In Tax On Investment Trust
The government has proposed to make changes in the Dividend Distribution Tax (DDT) which can potentially slow down the efforts of companies to raise funds by selling units in the investment trust(s).
RIL has been trying to raise funds and cut down the debts by selling stakes in the trusts which holds its optical fiber network and telecom towers.
Shubham Jain, Senior Vice Preside, ICRA Limited said that the changes in the rules and policies will restrict the returns of the investors in the trusts as it will make them add the dividends to their total income and paying tax. The higher tax for Unit holder will make raising equity much more challenging.
Delay in Aramco Deal
In August, Mukesh Ambani told the shareholders that RIL will sell 20% of its stake in its Oil and Petrochemicals unit to Aramco – Saudi Arabian Oil Company – in a deal which values its business brach at a whopping $ 75 billion. The sale of its stake is crucial as RIL wants to generate cash flow in order to reduce the group debt which was nearly $ 22 billion at the end of March 2019.
However, in December last year, the government petitioned a court requesting them to halt the sale to ensure the Mumbai based company has sufficient assets in order to pay the claims in arbitration case related to royalty and profit sharing payments between the company and its partners. RIL said that the plea submitted by the government isn’t legally justifiable and should be dismissed.
Initially, RIL expected to get done with the Aramco deal by March 2020 subject to regulatory approvals and due diligence. However, the company, in January, said that even though the talks with Aramco were on track, the ultimate pacts will take a few months at least.
Cut Down In Import Duties
While presenting the Budget on the 1st February, Nirmala Sitharaman, Finance Minister said that the government will reduce the import duties for Purified Terephthalic Acid to ensure easy availability of the product at a competitive price. This will affect the RIL which the biggest producer of chemicals in India which is used in the manufacturing of Polyester Yarn.
Income Tax Probe
According to the people who are familiar, it was said that the Indian Tax Department has widened its probe to find out if the members of the Ambani family have evaded taxes. However, RIL denied of any tax evasion.
The probe is based on information that the government received in 2011 by the French Authorities which had nearly 700 Indians who have accounts in the Swiss brancher of the HSBC Holdings Plc, the people were mentioned by a leading news agency of India.
Even though tax probes in India is nothing new but as the investigations are being carried out on the richest family of the country is unprecedented and shocked many. Mukesh Ambai is the 14th richest man in the world as per the real-time World’s Billionaire’s list of Forbes.