Reliance Industries Ltd. embarked upon its ambitious dream to enter the telecommunication industry in 2010 when it acquired 96% stake in a small player - Infotel Broadband (IBSL). IBSL was a private equity company valued at INR 4800 crores and was the only company to gain broad-band spectrum in all 22 zones in India in the government auction organized by Telecommunication Regulatory Authority of India (TRAI) in 2010. IBSL became a part of the Reliance Conglomerate and was rebranded as Reliance Jio Infocomm Ltd. in 2013.
Jio entered the market disrupting and rather bringing dooms to the business of major players, with a predatory pricing scheme in September 2016. It transformed the entire experience of voice-calling and the cheap data services-(approximately INR 18 against promised INR 11 per GB of data) offered are still the most competitive in the world. It paved the way for e-commerce companies and online streaming platforms to penetrate the most vibrant and diversified market in the world.
Becoming India’s largest telecom service provider was just the tip of the ice-berg, Reliance Ltd.’s aim is to control availability of data and all the services connected to its paraphernalia, emulating its global counterparts like Alibaba and Tencent. Jio reportedly has 22 mobile applications available on play stores catering to wide gamut of services ranging from cloud storage and backup, health and e-diagnostics, data security, digital payments to community recharge, gate management and live vehicle tracking. The most recent ones being Jio Meet and Jio Chat .There has been a lot of criticism with respect to the two aforementioned platforms for having similar user interface as Zoom and WhatsApp. But on the positive side, same user interface affords users the ease of switching to a new platform and conforming themselves to the popular sentiments of –“Aatma Nirbhar Bharat”.
The RIL has had an exemplary record of shareholder wealth maximization over the past decade, and it is by virtue of meeting its capital requirements via debt. Leveraging comes into play for the same by spreading net income over a smaller base of equity after debt has been serviced through constant interest payments. This is evident from the fact that between fiscal year 2010 and 2020, the net debt increased by 420% and the interest payments have magnified by 691%. This is in sharp contrast to rise in profits which grew at a mere CAGR of 63%.
RIL board decided to disinvest the controlling stake in the Jio Platform to make Reliance Industries net-debt free by March 2021. The board claims to reduce debt which currently stands at USD 21 billion. But as per the estimates of analysts at CLSA, Berstien, Kotak Institutional Securities, Goldman Sachs and Nomura the company’s quoted net liabilities are exclusive of deferred spectrum liabilities and capex creditors. According to them, including debt devoted to these accounts will account net debt estimates somewhere between USD 31.2-USD 33.8 billion. These estimates still don’t account for debt transferred to Fiber Investment Trust- a separate legal entity.
To achieve its target of becoming net debt free, RIL disinvested its stake in Jio by USD 15.2 Billion in a span of 9 weeks and in a total of 11 investment deals. These stake sales valued the company at a flamboyant value of USD 65 billion. The stake acquirers include global social media giant-Facebook, investment funds and companies like Vista Equity Partners, Public Invest Fund-(Under GOI), Silver Lake, Global Atlantic, KKR Asian Private Equity Fund, L Catterton and TPG . Despite the fallout of RIL’s deal with Saudi Aramco in September 2019, and the deal still being in back lock Abu Dhabi’s Mubadala and Abu Dhabi’s investment authorities have invested for a total stake of 3.01% in Jio Platform Ltd. (JPL)
The RIL’s share prices soared on NASDAQ, NSE, BSE and NYSE. The investors took a long position on JPL (Jio Platform Ltd.) especially after Facebook’s investment because of the possibility of curation of an ecosystem of symbiotic relationships. The testimonial to this fact is enabling Indian consumers to access local Grocery stores-Jio Mart. The Jio will have access to another 50 million WhatsApp users in addition to the existing 350 million consumer base of Jio. This deal will also help deepening digital payment integration with the most frequently used app, enabling the Jio payment services to widen the market.
This deal is expected to also give a new push to Facebook’s crypto-currency venture-Libra.
However this deal has also been criticized as with more synergies between Facebook and Reliance Jio can also have data privacy concerns become a bone of contention. And allegations and accusations against Facebook in the Cambridge Data Analytics Scam add more dismal to the picture. Mukesh Ambani’s words- “In this new world, data is the new oil. And data is the new wealth. India's data must be controlled and owned by Indian people and not by corporates- especially global corporations," themselves highlight the concern. Many analysts have also pointed out antitrust concerns despite the prevalence of stringent laws acting as watchdog, as the optimistic growth scenario portray RIL becoming a giant in Indian e-commerce, instant messaging, and digital payments etc.
RIL’s right issue was overwhelmingly oversubscribed. Reliance in a Follow on Public Offer (FPO) offered existing shareholders the right to buy one share against every fifteen they hold. The share price of the issue was INR 1257 against Last Trading Price (LTP). The issue is expected to raise INR 13281.25 crores. Reliance in a deal with Saudi Aramco-company plans to sell 20% in its Oil and Petrochemical business for primarily two reasons. The first one being the oil industry’s high positive correlation with global business cycles. Secondly, RIL will have access to accredited crude oil reserves of Saudi Aramco. The other deal yet to be concluded is Brownfield’s investment in Tower Infrastructure Trust. Another major deal in the back door is with Bharat Petroleum worth INR 7000 crores.
The following chart shows the disinvestment schedule:
