In a recent filing by Reliance Industries Ltd (RIL), the company has indicated that it is planning to set up a wholly owned subsidiary (WOS) for all its digital initiatives to create the largest digital platform company in India.
The objective is to make the digital platform holding company along with Reliance Jio (RJio) debt free that will pave the way for attracting strategic investors and financial investors in the digital business at a premium valuation.
What All is Included?
The group has created a very strong digital ecosystem through RJio, which has become the second-largest single country service provider with more than 355 million subscribers. The new subsidiary would include Reliance Jio and its platforms viz: MyJio, JioTV, JioCinema, JioNews and JioSaavan and all other emerging digital platforms in the areas of education, health etc.
After the completion of RJio’s major capital expenditure, the group demerged its tower and fibre passive infrastructure assets to make RJio asset light. However, RJio still has a balance sheet of Rs 2,37,000 crore post the demerger.
The primary objective of creating the aforesaid WOS is to make RJio debt free through the rights issue of optionally convertible preference shares (OCPS) aggregating up to Rs 1,08,000 crore to the WOS. This OCPS issuance by RJio to WOS is towards payment for transfer of identified liabilities of this amount to RIL (100 percent owner of WOS).
As part of this arrangement, the WOS will also take over RIL’s ownership of Rs 65,000 crore equity in RJIL. Effectively, WOS would hold an interest amounting to Rs 1,73,000 crore in RJIL. Post this, RJIL would become virtually debt-free by the end of FY20, with the exception of spectrum related liabilities.
The structure need not involve a complete cash outgo at this point in time. However, it can be expected to be in alignment with the redemption profile of the identified liabilities being transferred to RIL.
The most important objective of undertaking this structuring is to bring all the digital businesses under one umbrella.
All digital initiatives of cutting-edge technologies, collaborations and partnerships will happen on this platform.
Through the reorganisation of the capital structure, the equity base of this digital platform gets expanded from Rs 65,000 crore to Rs 1,73,000 crore, entirely held by RIL through its WOS. This will create capacity to onboard strategic / financial investors at a future date.
The digital platform will be debt free.
The coming together of all the digital businesses will make this company the first port of call for any overseas entity looking to harness Indian digital growth opportunities.
Hence, in future getting a financial and/or strategic investor for the digital business at a very good valuation is highly probable.
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