Reliance Industries Ltd (RIL) on Friday said it will set up a new subsidiary to bring all its digital initiatives and apps under a single entity, and infuse Rs 1.08 lakh crore equity into this new unit. The new structure is similar to those adopted by tech titans globally, and will offer a compelling investment proposition to strategic and financial investors, many of whom have evinced strong interest in partnership, the company said in a statement, adding that this will also create the largest digital services platform company in India.
The new entity will continue to work on technologies in areas like healthcare and education, while also looking at next-gen competencies like artificial intelligence, Blockchain, virtual and augmented reality, among others. It will also bring into its fold Reliance’s consumer-focussed digital offerings like MyJio, JioTV, JioCinema, JioNews and JioSaavn, while enabling Reliance Jio (RJIL)—its telecom arm—to become “virtually net debt free” by March 31, 2020 (excluding spectrum liabilities).
Under the new structure, RIL board has approved the formation of a wholly-owned subsidiary (WOS) for digital initiatives, and an investment of Rs 1.08 lakh crore in the said unit through optionally convertible preference shares (OCPS), the statement said. The WOS will also acquire RIL’s equity investment of Rs 65,000 crore in RJIL, it added. At the same time, the board of RJIL has approved a scheme between the company and certain classes of its creditors, including debenture holders, for transfer of identified liabilities of up to Rs 1.08 lakh crore to RIL.
RJIL board has also approved a rights issue of OCPS of up to Rs 1.08 lakh crore and the new digital subsidiary will subscribe to this issue. This will enable Reliance Jio to become “virtually net debt free company by March 31, 2020, with exception of spectrum related liabilities”, the statement said. The total capitalisation in digital platform services will be at Rs 1.73 lakh crore (including the existing Rs 65,000 crore). The proposed consolidated structure will be compliant with all statutory requirements, it noted.
“This new company will be a truly transformational and disruptive digital services platform. It will bring together India’s No 1 connectivity platform, leading digital app ecosystem and world’s best tech capabilities globally, to create a truly Digital Society for each Indian,” RIL Chairman and Managing Director Mukesh Ambani said. He added that given the reach and scale of its digital ecosystem, the company has received strong interest from potential strategic partners. “We will induct the right partners in our platform company, creating and unlocking meaningful value for RIL shareholders,” he added.
So far, RJIL was a subsidiary of RIL. RIL group also had various other digital initiatives like MyJio, JioTV, JioCinema, JioNews, JioSaavn as well as emerging platforms in healthcare and education. With this move, all of these digital initiatives will get streamlined under one roof, enabling early monetisation opportunities. An official, who did not wish to be named, said the latest move was intended to consolidate the digital platforms into an elegant capital structure to increase the attractiveness and simplify the structure for possible strategic investors.
The person explained that globally, technology giants that have attracted massive valuations have adopted similar structures. The statement on Friday said there will be no impact in the value — pre and post the re-organisation for any shareholder, or on the consolidated debt of RIL. It added that the move will not affect RIL’s standalone credit profile, given its robust cash flows and conservative leverage, while ensuring that monetisation opportunities accrue to shareholders.
The statement pointed out that assets worth about Rs 1.25 lakh crore were demerged from RJIL in March this year to Infrastructure Investment Trusts (InvITs) aimed at optimising operational efficiencies and better monetisation of core digital connectivity platform, tower and fibre passive infrastructure.
Post the demerger, RJIL had become asset light with a balance sheet of Rs 2.37 lakh crore, the statement noted. Reliance Jio is the second largest single-country operator globally, with 355 million subscribers. It claimed that its wireless network carries more than 400 crore GB worth of data per month, and nearly 1,000 crore voice minutes per day. The latest move by RIL comes at a time when rival telecom firms in the country are reeling under severe financial stress, accentuated by a recent Supreme Court ruling that is likely to further worsen the situation and increase their liabilities.
