RIL Restructuring Seen Putting Reliance Jio Platform Apps On Investor Radar
Reliance is restructuring Jio’s digital business into a new subsidiary, Jio Platforms Ltd., to become debt-free by March 2020.
Reliance Industries Ltd.’s move to create a new subsidiary for its digital businesses will make the segment increasingly attractive to potential investors, according to analysts.
With Reliance restructuring Reliance Jio Infocomm Ltd.’s telecom and digital business, billionaire Mukesh Ambani has moved a step closer to creating an e-commerce giant for India. The $24 billion digital-services holding company would become the main vehicle in his ambition to dominate the country’s internet shopping space.
The board of Reliance Industries approved a proposal to plow Rs 1.08 lakh crore into the fully owned subsidiary, which will in turn invest that amount in Reliance Jio. A series of capital transfers would make Jio, which already has capital of Rs 65,000 crore, almost debt free by March 2020, the parent said on Oct. 25.
The move by Asia’s richest man is the latest sign of the oil-to-petrochemicals group’s pivot toward data and digital services for future growth, as it builds an online platform to take on the likes of Amazon.com Inc. and Walmart Inc.‘s Flipkart Online Services Pvt. in India. Ambani told shareholders in August that Reliance Jio and Reliance Retail, are likely to contribute half of RIL's revenue in a few years, versus about 32 percent now.
The restructuring is also indicative of potential Reliance Jio and Reliance Retail IPOs, which Ambani has vowed to complete within five years.
Here’s what analysts made of RIL’s restructuring plans:
Morgan Stanley
- Consolidated debt remains unchanged
- Platform apps move onto investor radar
- Clarity on corporate structure improves
- Interest capitalization concerns lessen
IIFL Institutional Securities
The move, which involves transferring of Reliance Jio's debt to parent balance sheet, should make digital platform "increasingly attractive to potential strategic investor", said IIFL Institutional Securities.
Emkay Global
- RIL stock could see support from the restructuring
- Maintains Hold rating with target price of Rs1,540
- Both Jio Platforms Ltd. and Reliance Jio would be debt free, in line with global peers
- No immediate impact on shareholder value, debt, standalone credit profile
On Sunday, RIL shares rose 0.24 percent to Rs 1,434.10 apiece on the BSE while the benchmark Sensex gained 0.49 percent to end the day at 39,250.20 points. The markets were open on Sunday for Mahurat trading.
(With inputs from Bloomberg and PTI)