RELIANCE becoming Debt Free : Why ?

There are also contradicting talks about Reliance’s decision to pay up the debt and make it a zero debt company.

Does the company perceive that henceforth it might not be possible to earn more than the cost of money?? Are returns in business likely to be very low, which has forced the company to make it debt free so that it does not fall in to debt trap like Anil Ambani or many others.

Also, if more corporates deleverage in a big way, banks will be awash with lot of money and lesser credible borrowers. It would then mean lower returns for banks and bank profitability also being hit. Also, one should
be cognizant of the fact that debt free status will also come with rise in equity and that will dilute earnings at the same time.

So, eventually, the earnings may not rise much as a result of debt reduction. The markets will realise that sooner than later. Also it is possible that Reliance was enjoying some big benefits in refining margins while PSU companies purchased liquid fuel from Reliance. That advantage might go away, if it was there earlier.

It means that the profits might come down for Oil to Chemical division. Selling stake to Saudi Aramaco would also result in some insurance against any risk coming from Pakistan. Pakistan would not harm a company, where Saudis have a big stake. Reliance Refinery is at the border.

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