RIL - HOW MUCH WILL IT PAY?

about 9 months ago
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After hitting new highs consistently on Thursday as well as Friday, today morning, Reliance Industries opened under a lot of stress, trading persistently in the red.

The weekend was spent by its stakeholders mulling over whether or not the Aramco deal will go through and whether or not Reliance will need to pay a huge arbitration, to the tune of $3.5 billion to the Govt of India.

Well, the news broke (by Times of India) on Friday that the Govt is moving the Delhi High Court in trying to stop Reliance Inds Ltd (RIL) from selling its 20% stake in Saudi Aramco as it says that RIL first needs to pay up pending dues to the tune of $3.5 billion in the Panna-Mukta and Tapti (PMT) oil & gas fields production sharing contracts (PSC) case.

The Govt has asked RIL to file an affidavit disclosing the company’s assets. The Delhi High Court will next hear the case on Feb. 6.

The Govt wants to stop RIL from selling any assets as it fears that at the end of it all, RIL will raise its hands and say that it has nothing left to pay for the arbitration dues. This fear stems from the fact that RIL, as promised in the AGM in August 2019, is on a massive debt reduction drive and wants to make RIL zero debt by March 2021. The Govt argued that RIL has a debt of Rs.2.88 lak crore and if it resorts to major asset selling, it will make it very difficult for the Govt to recover the money. There is nothing wrong in what the Govt says but maybe it has got the amount to be paid wrong.

So the BIG two questions – will the Saudi Aramco 20% stake sale be in jeopardy? And will RIL have to pay the crazy sum which the Govt has asked for?

To answer the first – it is absolutely unlikely that the Saudi Aramco deal will get nixed. This deal alone is bringing in $15 billion as FDI and the Govt is not foolish to kick that out.

The second part – the liability on RIL? The company has very clearly and explicitly said that RIL has no direct liability in the PMT profit dispute with the state over profits from PMT fields. RIL said that “it is an abuse of process” as the arbitration tribunal has not asked the company to pay anything so far. The company said that the amount of money asked by the Govt to pay up had no basis, either in the arbitration award or as disclosed in the petition.

An international arbitration tribunal issued a partial award in October 2016 but it did not award any monetary sums. Quantification of amounts, if any, by the tribunal is to be done when all issues have been decided. RIL challenged this and in 2018 even the partial award given in 2016 was revised. The Govt again challenged this and once again in Dec’18, the partial award went in favour of RIL. While this matter remains pending in the UK court, the Govt has unilaterally calculated what it thought was “right” based on its interpretation of 2016 award.

Post 2018 arbitration award, the Govt’s claim has come down significantly. The truth is that RIL will most certainly need to pay money to the Govt but not as much as what the Govt has quoted.

Final amounts payable, if any, by the parties (ONGC 40%, British Gas 30% and RIL 30%) can only be determined by the arbitration tribunal in the quantification phase of the arbitration which will be scheduled after it has decided on all the issues before it.  So bottomline – money will most certainly need to be paid by RIL to the Govt.

Our Editor, Mr.SP Tulsian has stated, “Share of RIL in this case is seen around $900 million. RIL might agree to give a bank guarantee to enable the Aramco deal to go through.”

Mr.Tulsian does not expect this news to impact the stock price significantly.

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