Chennai: Tokyo headquartered Softbank is reportdly looking to make a mega investment in Reliance Jio that belongs to Asia’s richest man Mukesh Ambani, who is looking to deleverage business by selling stakes.
As per reports, Softbank might make a $2-3 billion investment in India’s fastest-growing telecom. However, the actual money that the entity might put in is yet to be confirmed. Also not disclosed as of yet is whether the e-commerce venture is included in the Jio entity.
“Softbank has long been seen as a potential investor in Jio,” JPMorgan said in a research report. “For the past two years, our conversations with investors have highlighted expectations of Softbank investing in Jio and hence the news flow is not surprising,” it said.
The news comes on the back of reports of Saudi giant Aramco in discussions to buy a 25 per cent stake in Reliance Industries’ refining and petrochemical business for $10-15 billion.
Recently, it was reported that SoftBank’s Vision fund is currently undertaking due diligence to buy a stake in Jio Infocomm, that was launched in September 2016 and within two years became the country’s third largest telecom company with highest monthly subscriber additions.
“As a policy, we do not comment on media speculation and rumours. Our company evaluates various opportunities on an ongoing basis. We have made and will continue to make necessary disclosures in compliance with our obligations under Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 and our agreements with the stock exchanges,” said a Reliance Industries spokesperson reported the PTI.
“In our view, for a meaningful de-leveraging, investors would likely want to see an equity inflow of more than $5 billion from a single investor or a combination of investors,” JPMorgan said valuing Jio at $50 billion. It, however, put implied equity value at $25 billion. Reliance Retail was valued at an implied equity value of $35 billion.
“A potentially smaller equity sale, which although would establish a larger equity value of Jio, would not be seen as a meaningful positive, in our view,” it said.
“We also need to see what the potential stake sale would involve. More importantly, from a stock price perspective, we believe the potential investment would have to be an equity investment in Jio and not in the proposed InviT as that would be a quasi-debt investment.”
“Overall, we maintain our view that while the earnings environment for the company is deteriorating with downside risks to refining and petchem (petrochemical), stock multiples would keep on moving higher on expectations of potentially large stake sales on higher than current implied equity values for the various businesses,” JPMorgan said.
| Differing viewpoints |
| In a separate report, HSBC Global Research said RIL’s consolidated adjusted net debt has declined to $33.2 billion in the fourth quarter of 2018-19 that ended on 31 March, from $42.7 billion in third quarter.
This was a result of the restructuring of the telecom operations (Jio) by transferring control of its key assets – fibre and towers – to two separate infrastructure trusts (InvITs) along with Rs 70,000 crore ($10 billion) of external liabilities and part of RIL’s investments of Rs 36,600 crore ($5 billion). “RIL will monetise these investments once external investors bring capital into the InvITs in the coming months. Jio as an anchor tenant will pay rentals for using these assets. In addition, RIL expects a business case beyond Jio’s usage as other telecom operators and customers can also lease these assets and can participate in any such upside after the trusts service liabilities of Rs 1.07 lakh crore,” HSBC said. It said investors will initially likely regard this restructuring as mainly a financing transaction to offload debt from RIL’s balance sheet, considering there is limited clarity on payments by Jio as well as any revenue upside from other customers. “We think deleveraging will remain a key theme, with more asset sales likely,” it said. “Strong earnings momentum, emerging signs of a strong outlook for both the telecom and retail businesses which extend beyond this decade.” |