Mukesh Ambani’s Reliance Jio may go public next year as debt for discounts starts to bite and 5G era beckons

Mukesh Ambani’s Reliance Jio may go public next year as debt for discounts starts to bite and 5G era beckons

  • Telecom service provider Jio is currently a subsidiary of Reliance Industries which is India’s second largest private company by market capitalisation.
  • Jio which triggered a data price war in Indian telecom sector to grab market share has been piling up debt since its birth in 2016.
  • Reliance Jio may sell shares in the latter half of 2020, according to a report, and the proceeds may go into repaying debt.
  • The company is conducting meetings with bankers and other consultants.
Billionaire Mukesh Ambani is considering taking his telecom venture Reliance Jio public in the latter half of 2020, according to an ET report.

Reliance Industries’, the energy-to-retail-to-telecom group however is keen on bringing in investors for the first two investment trusts (InvITs), which own its tower and fibre assets. The company and its executives are busy conducting meetings with bankers and other consultants which indicate that the talks on a possible Initial Public Offer (IPO) are gathering pace, the report said citing sources.

The company is the only telecom player to post profits in the quarter ending March, which went up 65% from a year earlier, the ET report said.

Gaining market share

Jio has already become a force to reckon with in the telecom sector as it has been rapidly gaining market share across the country. Without including national long distance, the revenue market share is at 39.8%, according to a report by brokerage Emkay.

Jio found a niche in B and C circles, like Madhya Pradesh, West Bengal and Bihar amongst others. However, all of this has been achieved with deep discounts funded by a massive debt.

“The intensity of RMS (revenue market share) gains has decelerated due to slower revenue growth,” an Emkay Global report said.

As on March 31, 2019 Reliance Industries’ borrowings under current liabilities stood at 644 billion crore which doubled from a year back at ₹374 billion, according to their financial statements. However, within a short period of operations, Jio managed to again over 306 million subscribers, by the way of burning cash with steep discounts on its 4G data.

Preparing for 5G

The company also has to prepare for the next phase in the telecom industry-- the roll out of 5G. Jio might need capital to take part in the upcoming 5G spectrum auction that can help leapfrog the country into the next generation of mobile technology.

Raising money from the capital market through issue of shares will not only give the company more ammunition but also more room to borrow money.