Google plan to unlock RIL wealth
Reliance Industries Ltd’s (RIL) bold move to create a holding company on the lines of Alibaba Holdings or Google’s Alphabet Inc could fetch huge returns to the company, with analysts saying the new digital services platform will become increasingly attractive to potential investors.
Market circles are also not ruling out the possibility of this new subsidiary being listed at a later stage.
RIL chairman & managing director Mukesh D. Ambani had told shareholders at the annual general meeting (AGM) in August that it will induct “leading global partners” in Reliance Retail and Jio over the next few quarters and move towards the listing of these companies within the next five years.
RIL has, however, kept its options open on whether to induct a potential investor at the subsidiary-level or at the level of an individual digital entity such as Jio.
While pointing to the new structure posing significant value-unlocking opportunity, RIL had said it can monetise either the consolidated eco-system or even the individual platforms such as Jio.
RIL on Friday had announced the creation of a new platform company in the form of a wholly owned subsidiary that will house all its existing digital platform initiatives. RIL will hold 100 per cent of the subsidiary, which in turn will hold 100 per cent of Reliance Jio Infocomm Limited (RJIL).
The move will lead to RJIL largely becoming net-debt free, barring spectrum liabilities of around Rs 25,000 crore, as liabilities of around Rs 1,08,000 crore will be transferred to the main parent. This is expected to make the new entity an efficient structure for investment by any potential partner.
RIL has said the debt-free holding company with capital structure similar to global technology peers such as Alibaba, Alphabet, Tencent or Apple will make it attractive for strategic investment or partnerships and the financially strong company is free to pursue new growth opportunities.
Brokerages feel the move will make the digital platform increasingly attractive to potential investors.
In a note, Morgan Stanley said that RIL's restructuring of telecom/ digital business raises focus on asset monetisation and debt reduction.
“Consolidated debt remains unchanged, but platform apps move onto investor radar, clarity on corporate structure improves and interest capitalisation concerns lessen,” it said on Monday.
IIFL Institutional Equities said the move, which involves transferring telecom venture Reliance Jio’s debt to the parent balance-sheet, should make digital platform “increasingly attractive to potential strategic investor”.
While the new structure will bring all the digital initiatives and apps under a single entity, RIL had said it will infuse Rs 1.08 lakh crore equity into this new unit by subscribing to optionally convertible preference shares (OCPS). The new structure will create the largest digital services platform company in India and it will continue to work on technologies in areas such as healthcare and education, while also looking at next-gen competencies such as artificial intelligence, Blockchain, virtual and augmented reality.
It will also include RIL’s consumer-focussed digital offerings such as MyJio, JioTV, JioCinema, JioNews and JioSaavn.