RIL’s fibre asset monetisation plan hits a roadblock

NEW DELHI | MUMBAI: Discussions between Reliance Industries (RIL) and a group of marque financial investors and sovereign wealth funds for a controlling stake of its pan India fibre InVIT — Jio Digital Fibre — appear to have stalled. Negotiations with the Abu Dhabi Investment Authority (ADIA)-led group that also included I Squared Capital, an infrastructure focussed fund, and GIC of Singapore have hit hurdles over differences in commercial and operating terms, said multiple people in the know. The three were acting together as a loose alliance. In parallel, GIC has also been evaluating joining Brookfield as a co-investor in Jio’s towers.Along with the prospective investors, Mukesh Ambani’s family office was supposed to coinvest to reaffirm his commitment to the business.The search is on to find alternative partners or tweak the terms. No term sheet has been signed between both sides, added the officials in the know. Talks can, however, resume if the two sides bridge their differences, said officials.After divesting its towers, Reliance’s efforts to unlock value in the fibre company were part of a series of time bound asset monetisation initiatives. These are critical for the group to become net-debt free over the next 18 months.Last Friday, Reliance agreed to transfer $15 billion (Rs 1.08 lakh crore) of its $23 billion (Rs 1.61 lakh crore) telecom liabilities into a standalone entity and bring Jio’s core telecom asset and various organic and inorganic digital investments under a 100% owned Jio Platforms (JPL), a precursor to onboard a strategic investor in that platform as well.“All develeraging plans of the tower, fibre assets and oil and chemicals business sale would help reduce debt to near zero,” say Mayank Maheshwari and Parag Gupta, analysts with Morgan Stanley.THE DEAL DYNAMICSThe broad structure of the prospective fibre trade mirrored that of the recently announced $3.7 billion (about Rs 26,274 crore) tower transaction — a 20-year sale and buy back with an assured return to the investors, said the officials mentioned above. This means that Jio sells the network to the investors and buys it back after 20 years. The equity value of the 700,000 km fibre backbone was pegged at around $8 billion, excluding the liabilities. Reliance is believed to have offered a 9.5% assured return to the potential investors on their equity contribution plus sharing of the revenue upside. The equity return commitment is on account of the fact that Jio would be a major user of the network, while revenue upside refers to sales generated by third parties using the network.But these have now turned out to be the bone of contention.“There has never been such a large fibre network built in the country, neither has it ever been monetised. There is still no visibility of how the business and its cash flows will pan out and to what extent Jio will enjoy pricing powers. In such a backdrop, the risk reward ratio offered was not stacking up for the investors,” said an official. Under such circumstances, the prospective investors also wanted to have more operating freedom on governance and pricing flexibility.Half of the fibre capacity, as per the terms offered by RIL, was to be used by Jio for its own users while the rest was meant for third party users. The investors, sources said, however wanted a greater commitment from Jio in terms of usage.Following the latest earnings call in October, RIL’s management said they are still looking for investors for the Fiber InvIT and discussions with potential investors for subscription of units of the Fibre InvIT “are in progress.”When contacted with specific queries around the negotiations, an ADIA spokesperson declined to comment. Mails sent to RIL, I Squared Capital and GIC did not generate a response till press time on Wednesday.71829172 CONNECTING BHARATReliance has been targeting 20 million households and 15 million enterprises in the next 12-18 months and is in the process of commercialising its fibre to the home (FTTH) service, after trials encompassing 0.5 million homes. As per Credit Suisse estimates the ramp up is expected to be around ~3 million plus homes by FY22, contributing nearly $200 million (Rs 1,420 crore) EBITDA.“We expect a similar contribution from enterprises segment by FY22. Together, we expect broadband division to contribute to $400-500 million (Rs 2,841-3,551 crore ) to Jio’s EBITDA in FY22,” said Anubhav Aggarwal and Sayantan Maji, analysts with the brokerage.In the fourth quarter of the financial year ended March 2019, Reliance Jio transferred its tower and fibre assets to two special purpose vehicles (SPVs) owned by the two Sebi-registered InvITs. In April, RIL said the two trusts have acquired 51% stakes each in Jio’s fibre and tower units — Jio Digital Fibre Pvt Ltd (JDFPL) and Reliance Jio Infratel Pvt Ltd (RJIPL). The trusts are sponsored by RIL’s 100% subsidiary, Reliance Industrial Investments and Holdings Ltd (RIIHL).The demerger helped Jio cut liabilities, which amount to Rs 1.07 lakh crore. In July, a consortium led by Brookfield Asset Management agreed to acquire Reliance Jio lnfratel unit in a multi-stage deal. To begin with, Brookfield were to invest Rs 25,215 crore in an infrastructure trust that owns 51% of the telecom tower company. Following the consummation of the transaction, Brookfield and its coinvestment partners were to own 100% of India’s largest telecom tower company with 170,000 towers through the Tower Infrastructure Trust. The proceeds will allow Mukesh Ambani-controlled RIL reduce debt at its telecom unit, Reliance Jio Infocomm, and free up cash to take on rivals. That deal is nearing completion, as per the management.The latest quarterly numbers show, despite rupee depreciation, the consolidated capitalisation of Reliance Jio fell 51%YoY/ to Rs 19,100 crore, an eight-quarter low. This in turn allowed a $500 million fall in reported net debt, the first QoQ fall in 14 quarters other than 4QFY19 due to demerger of tower and fibre.

from Economic Times https://ift.tt/2JASs4q