In December, telecom operator Reliance Jio Infocomm announced that its board had approved schemes to spin off the company's fibre and tower assets to separate entities. This move would give Jio, which boasts 2.20 lakh towers and nearly 3 lakh kilometres of optical fibre assets, the leeway to monetise its assets - the buzz suggests that it is leaning towards the infrastructure investment trust (InvIT) route - and, thereby, pare down debt. The two new entities are Jio Digital Fibre Pvt Ltd and Reliance Jio Infratel Pvt Ltd.
The valuation of the fibre assets is pegged at $6-8 billion. Sources in the know told The Economic Times that three investment banks -Moelis, Citi and ICICI Securities - have been appointed to reach out to potential investors across the Americas, Middle East and Asia, and Australia. Reliance, furthermore, is keen to continue as the sponsor of the InvIT and retain a minimum 15% stake in it, in which case, the remaining 85% would be sold to five global investors.
The line-up of interested investors reportedly includes Canada Pension Plan Investment Board (CPPIB), Caisse de Depot et Placement du Quebec (CDPQ), Abu Dhabi Investment Authority, Qatar Investment Authority, Kuwait Investment Authority, Kingdom Holdings, Khazanah, Allianz and Macquarie, among others. However, talks are still at a preliminary stage and management meetings are expected to kick off in the coming weeks. The company hopes to wrap up the deal by mid-FY20.
Meanwhile, Reliance Jio Infratel is expected to be sold separately to Canadian investor Brookfield. According to the daily, Brookfield, along with a clutch of insurers such as ICICI Prudential and the family offices of Russell Mehta and the Poonawalla family, is also buying East West pipeline for $2 billion and will transfer the asset into a separate InvIT.
As Srikanth Venkatachari, joint CFO of Jio's parent Reliance Industries said in January, "The end objective [of demerging our tower and fibre business] will be to have different set of investors who would want to run these companies. This means that these assets go off our balance sheets, so the liabilities also go down." He had reportedly added that Jio's capex intensity will go down because the group is almost completing its broadband infrastructure rollout. Backed by a Rs 3 lakh crore capital investment, the telco is aggressively putting the fibre network in place to deliver fibre-to-the-home (FTTH) services ahead of its shift to 5G.
Jio, which reported its fifth straight profitable quarter (Q3) in January, recently said that its home broadband and enterprise service, Jio GigaFiber, has already received an overwhelming response from customers in 1,400 cities. At a recent shareholders' meet, Ambani said Jio is committed to building a deep-fibre network across India.
"With DSL and ethernet forming 75% of current fixed-line broadband connections, a strong fibre offering by Jio could drive market-share gains," CLSA's Deepti Chaturvedi and Akshat Agarwal told the daily. "Jio has reiterated target of 50 million home broadband subscribers. We estimate that 10 million subscribers at Rs 700 average revenue per user would add incremental Rs 11,000 crore to capex and Rs 3,500 crore to EBITDA [earnings before interest, taxes, depreciation and amortisation] and $4.4 billion to Jio's EV."
According to their estimates, Jio's net debt is at Rs 1.12 lakh crore, including Rs 21,100 crore in spectrum liabilities due to the government in December-end. The firm clocked an EBITDA of Rs 4,053 crore in Q3, which annualises to over Rs 16,000 crore, putting the new entrant's leverage ratio at around 7x.
Besides, in January, the Competition Commission of India gave RIL the go ahead to acquire majority stakes in DEN Networks and Hathway Cable & Datacom - two of India's largest cable TV operators - for a total of Rs 5,230 crore. The acquisition will give RIL access to 24 million existing cable-connected homes of these companies across 750 cities, thereby covering around half of its target of connecting 50 million homes. It has also invested in content production directly through Viacom 18 and acquired non-controlling interest in several content firms.
According to a recent report by brokerage firm UBS, the oil-to-telecom conglomerate is evolving from an integrated energy company into a consumer giant like China's Alibaba and RIL could potentially rival the likes of Amazon and Walmart. It added that the Mukesh Ambani company can potentially become a unique quadruple play by bundling connectivity, carriage, content and commerce to gain higher share of consumers' wallet. As per UBS estimates, the consumer-centric ecosystem can reportedly generate 47% of RIL's consolidated EBITDA by FY23. However, the capital expenditure of the consumer-facing businesses is likely to remain high due to intensifying competition and, hence, the net debt will expand even in FY20, before starting to decline from FY21.
With PTI inputs
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