In a move that will make Reliance Jio practically debt-free, its parent Reliance Industries Ltd (RIL), is setting up a wholly-owned subsidiary for its digital initiatives, with a total capital infusion of ₹1.73-lakh crore.
Under this arrangement, ₹1,08,000 crore of RJio’s liabilities will be transferred to RIL. The new company will house all of RIL’s digital entities including RJio and other technology-based initiatives in education, healthcare and agriculture services.
RIL will make an equity infusion of ₹1.08-lakh crore through a rights issue. The new subsidiary will also acquire ₹65,000 crore of equity held by RIL in RJio.
“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 the world’s best tech capabilities, to create a truly digital society for each Indian,” said Mukesh Ambani, Chairman and Managing Director of RIL, in a statement.
The move enables RIL to unlock value in its digital properties either through strategic divestments or through public listing of shares. “Given the reach and scale of our digital ecosystem, we have 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,” Ambani added.
The new company will be the umbrella firm for MyJio (selfcare app), JioTV (live TV app), JioCinema, JioNews (news app) and JioSaavn (music app), among others.
It will also focus on healthcare, education, agriculture, commerce, government-to-citizen services, gaming and manufacturing, among others, said the statement.
Following the move, RJio will become a net debt-free company by March 31, 2020. However, it will still have spectrum liabilities.
This will not have any impact on the value pre- and post-reorganisation for shareholders, the consolidated debt of RIL, and RIL’s standalone credit profile, the company said.
Bad news for rivals
This is more bad news for incumbent players Airtel and Vodafone Idea, who are struggling under massive debt.
The entire debt of the telecom industry is around ₹4-lakh crore. In addition, the latest ruling by the Supreme Court puts an additional burden of ₹1.3-lakh crore on the incumbent operators.
RJio on the other hand, with a debt-free balance sheet, looks to have the upper hand for now.