The decision of Mukesh Ambani-led Reliance Industries Limited (RIL) to infuse Rs 20,000 crore into telecom arm Jio promises to heat up the broadband and e-commerce scenes. The fresh capital infusion will help Jio, now in the second position in the market share of mobile telephony, challenge Vodafone Idea's top position and expand broadband and e-commerce operations. The company is also hoping to make a splash in 5G services, the trials of which are set to begin in the next couple of months.
Reliance Jio will issue 4 billion non-cumulative optionally convertible preference shares to its parent at Rs 50 each for cash, a report in the Mint website said, citing unidentified sources. "The capital would be used to expand operations of Reliance Jio. The non-cumulative optionally convertible preference shares carry an interest rate of 9 percent," the sources said.
"Capital requirement for the telecom sector will stay high thanks to the constant infrastructure upgrading and the proposed 5G expansion. Jio is now focused on reaching out to India's underserved homes and enterprise connectivity market. Its mobility services along with GigaFiber fixed-broadband services is where it is focusing now," the report said, quoting an analyst.
Jio continues to invest to build capacity, for which it is borrowing heavily. The outstanding debt of RIL as of March 31 is estimated at Rs 2.87 lakh crore, which rose by Rs 69,000 crore this year due to investments in Jio. Apparently, RIL held cash reserves of about Rs 1.33 lakh crore as of March 31.
Jio is tackling the debt issue by hiving off the fiber and tower arms to two infrastructure investment trusts (InvITs) – Digital Fibre Infrastructure Trust and Tower Infrastructure Trust. RIL plans to invite external investment in these, the report said. The arrangement is expected to help Jio reduce the debt and also become an asset-light digital services company with leaner books.
"In our view, the InvIT has effectively allowed RIL to replace Rs 71,000 crore of external debt with very-long-term (20-year) money and thereby remove any refinancing need on this amount of debt. It also gives more balance sheet flexibility and allows RIL to further increase spending across its consumer business if it chooses to do so," according to a JPMorgan report.
Within three years of launch, Jio has garnered 306.7 million subscribers and a revenue market share (RMS) of 31.7 percent as of March 31, against Vodafone Idea's RMS of 32.2 percent and Airtel's 27.3 percent, the report says.
RIL is successfully cleaning up its books in contrast to the younger sibling Anil Ambani's continuing problems in reducing the debt. Anil Ambani has slipped from the billionaire club while he grapples with the financial woes of various group companies. A landmark move to transfer the spectrum assets of troubled Reliance Communications (RCOM) to elder sibling's Jio fell through following regulatory issues.