How Ambani plans to pare off a big debt

MUMBAI: Marquee global investors including some of the biggest pension and sovereign wealth funds are in initial discussions with Reliance Industries to invest in two infrastructure investment trusts (InvITs) set up to own Reliance Jio Infocomm’s tower and fibre assets.People aware of the situation said that Canadian pension funds CPPIB, Ontario Municipal Employees’ Retirement System (OMERS), British Columbia Pension Corporation (BCPC), Middle East sovereign wealth funds such as Abu Dhabi Investment Authority (ADIA), investment companies such as Mubadala and Singapore’s GIC, and European financial powerhouse Allianz SE are among the investors eyeing stakes in Digital Fibre Infrastructure Trust and Tower Infrastructure Trust.The plan is to induct a minimum of five unit holders or investors as stipulated by law. Some potential investors such as ADIA, Brookfield, CPPIB may also come on board as co-sponsors by deploying larger cheques.Reliance has already tasked three investment banks — Citi, Moelis and ICICI Securities — with getting investors on board, hoping the transaction will gather clarity by next quarter, ET had reported on March 11. 69105963 69105964 A Reliance spokesperson declined to comment on the development. “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 and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 and our agreements with exchanges.”PARTIAL REPAYMENT OF BANK BORROWINGSIn the fourth quarter of the financial year ended March 2019, Reliance Jio transferred its tower and fibre assets to two special purpose vehicles (SPVs) owned by the two Sebi-registered InvITs. In April, RIL said the two trusts have acquired 51% stakes each in Jio’s fibre and tower units — Jio Digital Fibre Pvt Ltd (JDFPL) and Reliance Jio Infratel Pvt Ltd (RJIPL). The trusts are sponsored by RIL’s 100% subsidiary, Reliance Industrial Investments and Holdings Ltd (RIIHL).The demerger has helped Jio cut liabilities of Rs 1.07 lakh crore. The entire capex was made through a combination of bank borrowings, other credit lines and NCDs. The fibre InvIT has issued 0% preference shares worth Rs 78,000 crore to RIL that are entitled to surplus cash flow annually (if any) after meeting the obligations towards InvIT stakeholders.The proceeds from the co-sponsors or unit holders will be used for the partial repayment of bank borrowings. After servicing the liabilities, the preference shares will be entitled to the remaining surplus cash flows, an official in the know explained on condition of anonymity.Some domestic banks and insurance companies too are likely to participate.However, these talks are still preliminary in nature, they said.Based on the initial discussions, Reliance would want to extinguish most of the existing liabilities through this exercise and retain around $2 billion (Rs 14,000 crore) of debt in the tower and fibre SPVs, said analysts closely tracking the conglomerate. Reliance will continue to run and operate these assets.The fibre unit is being valued at $23.84 billion (Rs 1,66,880 crore) and the tower asset at $5.27 billion (Rs 36,890 crore) using fair market valuations by three independent valuers. The tower SPV has 173,000 towers ready or in development with Jio as the anchor tenant. Jio also has contracted for 50% of fibre pairs.“We were surprised with the scale of the demerged tower and fibre assets with a book value of $18 billion, which is the largest among telecom operators in India,” said Nikhil Bhandari, analyst with Goldman Sachs. “We expect capex intensity in telecom to come down significantly in FY20E with a demerger of tower and fibre assets and 99% population coverage.”CPPIB, OMERS and Brookfield declined to comment. Allianz declined to comment on single assets, saying as a longterm investor, it would like to benefit from the continuous growth potential of the Indian economy and contribute via attractive investments.GIC, Mubadala, ADIA and BCPC did not respond to ET’s questionnaire till press time on Monday. “The InviT has effectively allowed RIL to replace $710 billion (Rs 71,000 crore) of external debt with very long term (20-year) money and thereby remove any refinancing need on this amount of debt. Secondly, it also gives more balance sheet flex and allows for RIL to further increase spending across their consumer business if they choose to do so,” says Pinakin Parekh, analyst at JP Morgan.Reliance is using its recent Brookfield deal as the template for these as well. In March, the Canadian investor bought the lossmaking East West gas pipeline, a private company of RIL chairman Mukesh Ambani for Rs 13,000 crore. Brookfield will come on board these InvITs but Reliance wants to engage with other global investors as well and build long-term relationships.The target set of investors include long-only capital of at least 10 years. “This is meant for pension or SWFs. It does not match the returns profile of traditional private equity,” said an investment banker following this transaction closely.InvITs are trusts that manage income-generating infrastructure assets, typically offering investors regular yield and a liquid method of investing in infrastructure projects. An InvIT will help the infrastructure investor create liquidity and take some money off the table for RIL, while also providing a yield product to investors. Typically, analysts estimate that the steady cash-flow generating infrastructure business should yield a 12-13% internal rate of return (IRR), excluding leverage.

from Economic Times http://bit.ly/2IObR3d