Reliance Industries Ltd (RIL) will create a wholly-owned subsidiary that will house all its digital businesses, including its telecom offshoot Jio, and infuse Rs 1.08 lakh crore into the new entity as it looks to make Jio debt-free and catapult it into the league of global tech powerhouses such as Alphabet (the parent company of Google) and China’s Tencent.

The RIL board approved the formation of the subsidiary and the investment of Rs 1.08 lakh crore in the form of a rights issue of optionally convertible preference shares (OCPS), said a statement issued by RIL, India’s biggest private enterprise, on Friday evening.

The new subsidiary will also acquire RIL’s equity investment of Rs 65,000 crore in Jio. The arrangement will make Jio a virtually net debt-free by March 31, 2020, exceptfor spectrum-related liabilities, said the statement.

Why did RIL consolidate its digital businesses?

Creating a wholly owned subsidiary is expected to help RIL unlock value for Jio at a future date. A consolidated digital platform that offers a gamut of services such as self-care, information, entertainment, chat, utility tools, etc will potentially become attractive to strategic players and dressing up Jio as a debt-free entity will make it suitable to investors as well.

The statement said the new arrangement ensures that monetisation opportunities will accrue to shareholders efficiently and consolidation of liabilities in RIL creates an efficient structure to manage debt and cash.

Market analyst Deven Choksey of KR Choksey Securities said Friday’s move by RIL could be a precursor to the listing of this digital platform eventually, probably comprising various verticals such as retail, healthcare, entertainment, etc. “This appears to be one of the smartest moves wherein the shareholders of Reliance could now see the unlocking of valuation of the businesses that they have built."

His counterpart SP Tulsian agreed. “This may be the preparation for Reliance Jio to go public and for that ownership has to be in the equity and not in the form of preference shares,” he said.

A world-class disruptor

Reliance, led by billionaire Mukesh Ambani, launched Jio three years ago. RIL’s foray into the telecom sector disrupted the industry, forcing competitors to innovate, merge or simply shut shop.

Today, Jio is India’s largest telecom player — having gained 355 million subscribers and adding up to 10 million a month — and the second largest single-country operator globally.

Though Jio entered the telecom sector, the vision of the company has been much more than just that. Jio has pressed ahead with offering digital applications, tools and platforms spanning self-care, information, entertainment, chat, utility tools etc.

An early indication of Jio’s digital ambitions came from its strategy to centre its business on data and not voice like other telecom players. At RIL’s latest AGM in August, Ambani said he intended to make Reliance net debt free by 2021.

On Friday, Ambani said the company has received strong interest from potential strategic partners given the reach and scale of its digital ecosystem. “We will induct the right partners in our platform company, creating and unlocking meaningful value for RIL shareholders.”

RIL’s digital units include a self-care app named MyJio, live TV app JioTV, JioCinema, the entertainment app, news platform JioNews and music app JioSaavn.

Disclosure: Reliance Industries, the promoter of Reliance Jio, also controls Network18, the parent company of CNBCTV18.com

First Published:Oct 25, 2019 8:40 PM IST