Reliance Jio and Investors Hit a Roadblock in Negotiation for Fibre Asset Monetisation

Reliance Jio plans to monetise its fibre assets by bringing in investors on board, but the talks have hit a wall over some terms

By October 31st, 2019 AT 12:14 PM
  • Reliance Jio is planning for a 20-year sell and buyback strategy
  • GIC Singapore, ADIA, Squared Capital are some of the companies involved in the deal
  • The telecom company has promised a 9.5% assured equity return to investors

With the telecom industry currently in a financial rut, the telecom operators are searching for various avenues of fundraising. The Mukesh Ambani led telecom operator, which is the top telecom operator in the industry is also no exception to this. The company has been looking towards the monetisation of its fibre assets, but according to a new ET report, the fibre asset monetisation plans for Reliance Jio could have hit a new hurdle. Some of the major wealth management firms and big financial investors were in talks with the telco for getting a controlling stake in InVIT — Jio Digital Fibre. The investors which were in talks with Reliance Jio included Abu Dhabi Investment Authority (ADIA), Squared Capital, and GIC of Singapore. As per the report on the matter, the talks with three of these investors have hit a snag. On the matter of monetisation, the three companies were acting as a loose alliance. There was also news of GIC joining Brookfield as the co-investor in Jio’s tower firm.


Investors Not in Favour of Terms Being Offered by Reliance Jio

Along with the said investors, the family office of Mukesh Ambani was also said to co-invest to show his commitment towards the business. Now, the task for Reliance Jio is to find new investors or to tweak the terms. As per the officials aware of the matter, no term sheet has been signed between the parties. However, the talks can resume between the parties if the terms are favourable for both. It is worth noting that Reliance Jio has already divested its share in the tower company, and its efforts to do the same with the fibre assets were part of a plan under which it was to monetise both of these. Reliance Jio has announced that it wants to be debt-free in the next 18 months and these two asset monetisation plans are crucial for that to happen.

Reliance Jio to Reduce Debt to Zero in 18 Months

Mayank Maheshwari and Parag Gupta, analysts with Morgan Stanley, remarked that all deleveraging plans of the tower, fibre assets and oil and chemical business sale would help reduce the debt to near zero for the telco. Last week, Reliance Jio transferred Rs 1.08 lakh crore of its Rs 1.61 lakh crore telecom liabilities into a standalone entity to bring Jio’s core telecom assets, and various inorganic and organic digital investments under a 100% owned Jio platform (JPL). This move suggests that Reliance Jio could be on the lookout for a strategic investor in this company as well.

Reliance Jio’s Fibre Asset Monetisation Plan Explained

The deal for fibre monetisation is structured such that Reliance Jio would sell the fibre assets to the investors and repurchase it after 20 years. For this deal, Reliance Jio has promised an assured equity return of 9.5% to the potential equity investors, and this would be in addition to the sharing of the revenue upside. The commitment made by Reliance Jio is on the account that the telecom operator itself would be a major user of the network, and also there would be third party users of the network which would bring in additional revenue for the fibre assets.

As per the terms being offered by Reliance Jio, the half of the total capacity of the fibre network was to be used by Reliance Jio, whereas the other half was meant for the other third party users. But, the investors in the deal wanted a commitment for much more than half the usage by Reliance Jio. It is worth noting that the current fibre footprint of Reliance Jio is more than 700,000 route km approximately. The Mukesh Ambani led telecom operator is targeting 20 million households and 15 million enterprise customers in the next one and a half year while it goes on to commercialise its FTTH service.

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Arpit spends his day closely following the telecom and tech industry. A music connoisseur and a night owl, he also takes a deep interest in the Indian technology start-up scene and spends rest of his time spilling poetry and stories on paper.

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