Reliance Industries Limited (RIL), having outstanding debt of ₹2,74,381 crore ($39.3 billion) as on December 31, 2018, is looking to deleverage by transferring ₹65,000 crore worth liabilities of its telecom arm Reliance Jio to its tower and fibre arms which are proposed to be demerged.
The development comes even as its ₹25,000-crore tower deal with Reliance Communications (RCom) is on hold after the Department of Telecommunications (DoT) refused to give approval to the deal as Reliance Jio refused to take liability for the previous dues of RCom.
Long-term use of assets
Reliance Jio Infocomm Ltd., the telecom arm of RIL, has decided to demerge its passive tower and optic fibre network into Reliance Jio Infratel Private Ltd. and Jio Digital Fibre Ltd. respectively, and has entered into arrangements for long-term uninterrupted use of these assets.
The company plans to monetise its tower assets and optic fibre network after the demerger by selling stakes in them.
As per the terms of the deal, preference shares worth ₹65,000 crore of Reliance Jio will be cancelled and converted into debt in the books of resulting companies, a source in the know of the development told The Hindu . Shareholders and creditors of Reliance Jio will meet on February 18 to approve the demerger of the tower and optic fibre network.
“Company intends to hive off tower and fibre assets and get outside investors in, so as to reduce overall debt levels. We believe this effectively punctures hopes of tariff increases for other telcos [as was argued by some bulls]. We stay cautious on telcos,” Credit Suisse said in its report after the results.
Reliance Jio’s total liabilities stood at ₹1,84,915 crore compared with the total assets of ₹1,04,231 crore as on September 30, 2018.
According to CLSA “Reliance may fully sell-out and get into a sale and leaseback transaction for Jio’s tower and fibre following the recently announced demerger.
“As a big chunk of Jio’s $40 billion investment has gone into building this infrastructure, we suspect this transaction, likely in 1HCY19, is to reduce a large portion of Jio’s $25 billion in liabilities as it is sold with these companies. Incremental fibre and mobile capex will also be done by these entities, with Jio paying leases and maintaining an asset- light balance sheet,” said the CLSA report.
RIL’s shares on the BSE rose 4.34% to close at ₹1,182.95 in a flat Mumbai market on Friday.
