5G is going to be very capex intensive, more so than 4G. The infrastructure needs to be denser, and the standalone (SA) technology that Jio is going for would mean more expenditure. To scale the 5G rollout at a fast pace with such costs, Reliance Jio needs access to huge funds. While the telco is already making profits, the 5G capex would be so large that it can suck the telco dry and create liquidity issues. Thus, taking debt is the easiest manner for a profitable and reputable company such as Jio to fund its expansion plans. Especially when the competition is someone like Airtel, who has been persistent with the kind of business it does and is also looking to expand 5G fast.
According to a report from The Economic Times, Reliance Industries, as well as Reliance Jio, are in talks with major lenders such as HSBC, Barclays, and MUFG Bank to raise up to $1.5 billion and $2.5 billion, respectively, in overseas loans.
Reliance Jio Looking for Funds to Purchase 5G Gear from Ericsson and Nokia
Reliance Industries is looking to raise funds via external commercial borrowing (ECB) to aid its capital expenditure plans. According to the ET report, the loans may be priced 130-150 basis points above the SOFR (Secured Overnight Financing Rate). Reliance Industries is in negotiations with Bank of America, Citigroup, DBS Bank, Credit Agricole and Mizuho Bank.
Jio is also in discussion with banks such as HSBC, BNP, Bank of America, and Societe Generale for arranging an offshore syndicated loan for funding 5G network gear purchases. Jio is collaborating with companies such as Nokia and Ericsson this time for its 5G plans. Loans to Jio are expected to be priced 65 basis points above the SOFR, and the loan's tenor could be up to 7 years.
Jio has already launched its 5G beta services in four cities of the nation, including Delhi, Mumbai, Kolkata and Varanasi from October 5, 2022.