A taxi boat navigates near oil pipelines. (Photographer: Dado Galdieri/Bloomberg)

Pipeline Stake Sale To Cut Mukesh Ambani’s Debt By Rs 16,400 Crore

Brookfield’s India Investment Trust’s acquisition of Mukesh Ambani-owned loss-making pipeline business will help Asia’s richest man lower his private debt by nearly Rs 16,400 crore.

The Canadian investor-sponsored InvIT will buy 100 percent of Pipeline Infrastructure Private Ltd., owner and operator of the pipeline that transports Reliance Industries Ltd.’s eastern offshore KG-D6 gas to customers, according to the company filing.

According to the offer document of the investment trust uploaded on the SEBI website:

  • East West Pipeline Ltd., owned by Ambani’s investment companies, will transfer its pipeline assets to Pipeline Infrastructure.
  • Pipeline Infrastructure, now owned by the trust, will pay Rs 600 crore in cash and will issue redeemable preference shares worth Rs 50 crore to East West Pipeline.
  • The investment trust will also repay East West Pipeline’s debt worth Rs 16,400 crore owed to Sikka Ports & Terminal Ltd., Ambani’s privately owned company classified as a promoter entity of Reliance Industries Ltd, according to offer document.
  • The deal values the pipeline assets at Rs 17,050 crore.
Pipeline Stake Sale To Cut Mukesh Ambani’s Debt By Rs 16,400 Crore

Sikka Ports had raised Rs 19,500 crore by issuing non-convertible debentures and commercial papers, according to ICRA Ratings’ June 2018 note. Mutual funds, private insurers, trusts, banks and non-bank lenders invested in these instruments.

How Investment Trust Will Pay The Debt

  • The trust will acquire Pipeline Infrastructure’s shares worth Rs 50 crore.
  • Separately, along with its sponsor, it will also subscribe to non-convertible debentures worth Rs 12,950 crore issued by Pipeline Infrastructure.

The funds raised will be used to repay debt. The rest will come from Ambani’s Reliance Industries Ltd.

Reliance Industries, through fully owned arm Reliance Industrial Investments and Holdings Ltd., had earlier invested close to Rs 3,542 crore in East West Pipeline by subscribing to its redeemable preference shares. These will now get transferred to Pipeline Infrastructure as part of the agreement signed on Feb. 11, RIL said in a statement to BloombergQuint.

The redemption value is expected to be around Rs 4,000 crore and these redeemable preference shares will now compulsorily get converted into equity shares after 20 years. The coupon rate stands reduced to 0.1 percent from an earlier rate of 9 percent.

In short, debt of Ambani’s privately owned company will get reduced by Rs 16,400 crore through funds raised from Investment Trust, its sponsor and Reliance Industries.

Pipeline Stake Sale To Cut Mukesh Ambani’s Debt By Rs 16,400 Crore

The Business

The pipeline business reported losses in each of the last three years because of higher depreciation and transmission charges. The volume of gas transported through the pipeline also remained largely flat.

Pipeline Stake Sale To Cut Mukesh Ambani’s Debt By Rs 16,400 Crore

Its poor financials stem from the sharp drop in volumes at KG-D6 block off the coast of Andhra Pradesh. Reliance Industries, in its filing, said considering the new investments in the fields, growing liquefied natural gas imports and the ability to swap gas, the average volume expected to be transported through the pipeline is likely to rise.

The Petroleum and Natural Gas Regulatory Board recently approved a 37 percent rise in tariff from April 1 for the pipeline. Transporting natural gas on the East-West pipeline will now cost Rs 71.66 per million British thermal units.