Aramco begins due diligence at Reliance MFs ring-fence Voda Idea exposure on default fear

■ Oil behemoths trying to revive stalled mega deal

Reliance Industries Ltd’s talks to sell a minority stake in its oil-to-chemical division to Saudi Aramco have been gathering pace in recent weeks, according to people familiar with the matter.

Aramco officials and bankers on the deal have been working at Reliance’s offices in Mumbai for due diligence this month, according to the people, who asked not to be identified as the information isn’t public. Both parties are trying to overcome differences over the deal’s structure, which had stalled the process last year.

Mukesh Ambani-led Reliance is keen to sign a binding agreement before the next annual shareholders meeting, which is due to take place before the end of September, one of the people said.

Reliance in August valued its oil-to-chemicals division at $75 billion, including debt, implying a $15 billion valuation for the 20 per cent stake. If the deal closes at this value, it will be the largest transaction in India since Walmart Inc’s $16-billion acquisition of a majority stake in Flipkart Online Services Pvt Ltd.

For Aramco, the deal could be its biggest since agreeing to buy a majority stake in Chemicals last year.

Ambani in told shareholders that Reliance and Aramco had agreed to a non-binding deal for a 20 per cent stake in the oil-to-chemical operations. But in December, the government requested a court to stop the proposed sale to help ensure the company

Saudi for $69

Basic billion

August has enough assets to pay arbitration claims in an unrelated case. A month later, Reliance’s joint chief financial officer V. Srikanth told reporters that the transaction isn’t expected to be completed by March.

Reliance has been selling assets from mobile-phone towers to a 49 per cent stake in its fuel retail business to reduce leverage that’s risen over the past few years as it poured money into new sectors such as telecommunications. The conglomerate’s debt stood at $43 billion at the end of December, according to its latest earnings statement.

Deliberations between Reliance and Aramco are ongoing and talks could still fall apart, the people said. A representative for Reliance declined to comment, while a representative for Aramco, formally known as Saudi Arabian Oil Co., didn’t immediately respond to requests for comment.

— Bloomberg

New Delhi, Feb. 18: Mutual funds are carving out their investments in troubled Vodafone Idea Ltd’s debt into separate portfolios as they seek to limit any fallout from a possible default by the telecom carrier.

UTI Mutual Fund and Nippon Life India Asset Management moved to ring-fence their holdings in Vodafone Idea’s debt on Monday after credit assessor Care Ratings downgraded the carrier’s borrowings, statements from the companies show. Last month, Franklin Templeton Mutual Fund also sidepocketed the company’s debt.

Creation of segregated portfolios is a mechanism to separate distressed, illiquid and hard-to-value assets from other liquid assets in a portfolio.

In December 2018, the Securities and Exchange Board of India allowed asset managers to side pocket, or separate distressed, illiquid and hardto-value assets to prevent them from damaging the returns generated by more liquid, better-performing assets.

In a statement, UTI AMC said its board of trustees approved the creation of segregated portfolio in five schemes—UTI Credit Risk Fund, UTI Bond Fund, UTI Regular Savings Fund, UTI Dynamic Bond Fund and UTI Medium Term Fund.

"With effect from February 17, 2020, securities of Vodafone Idea Ltd will be segregated from total portfolio," it added.

These five schemes have exposure of Rs 186 crore in debt instruments issued by Vodafone Idea.

Nippon India MF said it has decided to create segregated portfolio of securities of Vodafone Idea held in three schemes—Nippon

India Strategic Debt Fund, Nippon India Credit Risk Fund and Nippon India Hybrid Bond Fund--from February 17 to protect the interest of investors.

The fund house has an exposure of over Rs 227 crore to Vodafone Idea debt across the three schemes.

"In light of no further relief and the Supreme Court's reiteration of the requirement to make the payment imminently, the company's operations are likely to become unviable unless there is significant equity infusion," Nippon India said in a note to investors.

Last month, Franklin Templeton MF side-pocketed

its exposure after rating agencies had downgraded the non-convertible debentures of Vodafone Idea to below investment grade.

Prior to that, Franklin Templeton MF, which had an exposure of over Rs 2,000 crore to Vodafone Idea in six of its schemes, had marked down its investment in the securities issued by the telecom player to zero.

The fund house had markdown the schemes on the same day the Supreme Court rejected the telecom player's review plea related to over Rs 40,000 crore in adjusted gross revenuerelated dues to the government. —Agencies