Billionaire Mukesh Ambani revealed a plan to sell a stake to Aramco as part of efforts to pare debt

Highlights Reliance Industries aims to be a zero-net-debt company in 18 months

Conglomerate had net debt of Rs 1.54 lakh crore at end of March 31

RIL will start preparing to list its retail, telecom units within 5 years

Reliance Industries Ltd. soared the most in more than two years after billionaire Mukesh Ambani revealed a plan to sell a stake to Aramco as part of efforts to pare debt.

The conglomerate aims to be a zero-net-debt company in 18 months, Asia's richest man told shareholders Monday. Aiding that would be a proposed sale of 20 per cent of Reliance's oil-to-chemicals business to Saudi Arabian Oil Co. at an enterprise value of $75 billion. The company will also start preparing to list its retail and telecommunications units within five years, Mr Ambani said.

Shares of Reliance jumped as much as 9.3 per cent in Mumbai on Tuesday, their biggest intraday gain since February 22, 2017. Morgan Stanley, Macquarie Group and BOB Capital Markets were among brokerages that upgraded the stock.

The tycoon is cleaning up the group's finances following years of spending on his wireless carrier, whose entry in 2016 with free calls and cheap data upended the industry and spurred a consolidation. The $50 billion plowed into the phone venture, mostly in debt, has raised concerns among analysts including at Credit Suisse Group AG that Reliance's ballooning borrowings could weigh on growth. Mr Ambani sought to allay those fears.

"With these initiatives, I have no doubt that your company will have one of the strongest balance sheets in the world," he said. "We will also evaluate value unlocking options for our real estate and financial investments." The group spent $76 billion in the last five years, he said.

The Aramco deal should be completed by March and is subject to due diligence, definitive agreements and regulatory and other approvals, Mr Ambani said. He didn't say how the deal would be structured.

Saudi Aramco and Reliance Industries have agreed to a non-binding Letter of Intent regarding a proposed investment in the Indian company's oil-to-chemicals division comprising the refining, petrochemicals and fuels marketing businesses, according to a statement from Reliance on Monday.

Signaling an end to the spending cycle at Reliance Jio Infocomm Ltd., Mr Ambani is setting a new growth path for his group, whose bread-and-butter business has been oil refining and petrochemicals. The company is building an e-commerce platform by leveraging its phone network and Reliance Retail Ltd. to eventually take on Amazon.com Inc. and Walmart Inc.

"This is a unique business model we are building in partnership with millions of small merchants" and mom-and-pop stores, he said. As part of the plan, Reliance has been forming partnerships and acquiring technology assets. This month, Reliance announced plans for a joint venture with Tiffany & Co. to open stores for the jeweler in India, and in May paid $82 million for the British toy-store chain Hamleys.

The new businesses are likely to contribute 50 per cent of Reliance's earnings in a few years, from about 32 per cent, Mr Ambani said.

What Bloomberg Intelligence Says

"Reliance Industries could dominate the Indian telecom and organized-retail segments through aggressive expansion, capitalizing on its energy business. More than $7 billion in annual cash flow from the energy business provides a war chest to win market share in the retail and telecom industries"

--Kunal Agrawal, energy analyst

While the spending on Jio has helped Reliance lure almost 350 million users in the world's second-biggest mobile market, the growth has come at a price.

Not Since 2013

Reliance had a net debt of Rs 1.54 lakh crore ($22 billion) at the end of March 31, according to Mr Ambani. His plan to carry zero debt would mean the borrowings would fall below the company's cash reserves to a level not seen since 2013.

Last week, Credit Suisse cut its recommendation for Reliance's stock and the price target citing reasons including rising liabilities and finance costs. Shares of the company pared their losses Tuesday after having earlier slumped about 18 per cent from a record reached on May 3. The benchmark S&P BSE Sensex declined 4 per cent in the same period.

Reliance's debt is backed by "extremely valuable assets," Mr Ambani said, signaling his group isn't prone to the kind of troubles that have been plaguing many other corporate borrowers in India. The conglomerate controlled by Mr Ambani's younger brother, Anil, has been struggling to pay creditors while his mobile carrier has slipped into bankruptcy.

Apart from the Aramco deal, Reliance also announced a joint venture with BP Plc this month, under which the European oil major would buy 49 per cent of the Indian firm's petroleum retailing business. Reliance would receive about Rs 7,000 crore under this deal.

The "commitments" from the Aramco and BP deals alone are about Rs 1.1 lakh crore, Mr Ambani said, adding that Reliance will induct "leading global partners" in telecom and retail units in the next few quarters.