The combined debt of RIL and its subsidiary RPL will be brought down to around Rs 57,000 cr from Rs 72,000 cr at present.
Reliance Industries Ltd is planning to use its surplus cash to repay about Rs 15,000 crore or about 21 per cent of its debt during the current financial year.
A company executive, who did not want to be identified, said the combined debt of RIL and its subsidiary, Reliance Petroleum, which is being merged with it, would be brought down to around Rs 57,000 crore this year from Rs 72,000 crore at present.
The executive said RIL required about Rs 23,000 crore during the current financial year to invest in the exploration and production business and would not raise additional funds to ensure that the level of debt remained low. The capex and repayment requirements together add up to around Rs 38,000 crore.
The company intended to use a part of its cash reserves of Rs 25,000 crore and revenues from the Krishna Godavari basin gas and those from the recently-commissioned refinery in Jamnagar to meet its requirements, the executive said. The refinery is expected to be fully operational during the current quarter.
During 2008-09, RIL's debt rose 46.55 per cent to Rs 53,457 crore after it invested in gas exploration and production in the KG basin. So far, the company has invested more than Rs 50,000 crore in its exploration and production business. The details of RPL's debt were unavailable, but company sources said that it would be around Rs 18,500 crore.
"Though we are pretty comfortable with our debt position, the company plans to keep the debt lower, leaving space for future fund-raising," said another official in the company.
Asked about the pre-payment, an RIL spokesperson said, "The company has 'AAA' rating and will make capital allocation decision in line with the rating. The company does not provide guidance on debt levels."
"RIL's cash flow is expected to increase 57 per cent to around Rs 33,000 crore in 2009-10 from around Rs 21,000 crore last year, " said Niraj Mansingka of Edelweiss Capital.
Even after deducting capital expenditure of about Rs 23,000 crore, based on RIL's guidance, from the cash flow, the company will have a surplus cash of Rs 10,000 crore, Mansingka added. Thus, it makes sense for the company to reduce its consolidated debt of around 72,000 crore through repayments during the same period.
In a recent report, CLSA said, "Reliance expects to spend about Rs 22,500 crore in capex in FY10 but this should still leave it with about Rs 10,000 crore in free cash flow for the year." The report also estimated that the company's revenue would increase 44.67 per cent to Rs 2,14,895.80 crore, while earnings before interest, taxes, depreciation and amortisation would rise 42.64 per cent to Rs 34,244.20 crore.
In March, Crisil had reaffirmed 'AAA/Stable/P1+' ratings on RIL's debt instruments, and 'P1+' on the bank facilities of RPL, saying the proposed merger would scale up RIL's refining capacity to 1.24 million barrels per day (bpd), which would give it an entry into the league of top 10 producers globally.
About 80 per cent of RIL's gross debt is dollar-denominated. "The effective interest rate is 10 per cent for the rupee-denominated debt, while it is 4.9 per cent for dollar-denominated debt," ICICI Securities said.
RIL recently started gas production from the largest find in the country and began supply to fertiliser companies. The current gas production from the KG basin is around 12 million standard cubic metres a day. It expects to produce 40 MSCMD gas by the end of June and ramp up production to 80 MSCMD by the end of the year.
In December, RIL, which operates a 33 million tonne per annum refinery at Jamnagar, had commissioned a 27 MTPA export-oriented refinery through RPL.