Reliance Industries in trouble?

Reliance Industries in trouble?

Reliance Industries' corporate debt has ballooned to around Rs. 1.60 lakh crores and rising. The company borrowed tremendous amounts of money over the last few years and their debt doubled in the same period [1]

Many companies borrow to fund future growth, but Reliance ended up investing its borrowed money in oil reserves, petrochemicals and shale gas reserves. The prices of all of these have gone down significantly and thus Reliance is not generating enough revenue. Last year, for example, saw Reliance's operating revenue go down by Rs. 60,000 crores. Their debt however increased from 1.38 crores to 1.60 lakh crores [2]

Even though RIL has shown that they are making profit, it is highly suspect if they are making enough money to pay off long term debt. Companies have a habit of manipulating numbers to show profit. The revenue numbers however, don't lie.

The big question now is - if Reliance Industries defaults on its loans (high likelihood), will the Government bail them out, or will they aggressively go after their assets after forcing them to file for bankruptcy?

Keep in mind, RIL's assets include the highly controversial KG-gas basin.

The debt bomb is affecting many other Indian companies who greedily went after cheap loans and are now feeling the heat [3]

The international monetary fund has already warned that high corporate debt can destabilize our otherwise healthy economy [4]

References -

[1]http://www.dnaindia.com/money/report-reliance-s-debt-went-up-by-nearly-rs-10000-crore-even-as-it-posted-7-year-high-profit-2107935
[2]https://www.valueresearchonline.com/stocks/Finnance_Annual.asp?code=3252
[3] http://www.businesstoday.in/magazine/cover-story/massive-corporate-debt-may-slow-down-economic-recovery/story/217700.html
[4]http://www.livemint.com/Companies/z4M2jlVmUwrLMTegUZE2wM/Concentration-of-high-debt-among-some-Indian-firms-may-pose.html