After seven years the start of a deleveraging cycle at Reliance Industries (RIL) record capital expenditure should ease investor worries of subpar return ratios at the telecom hand of the company.
RIL has demerged the tower and fiber businesses of Jio in favor of a special purpose vehicle (SPV) at the end of March 2019. The majority stake in the SPV will be transferred to a Sebi-registered Infrastructure Investment Trust (InvIT). RIL is seeking investors for the InvIT as Sebi guidelines require at least five non-sponsor entities for a privately placed InvIT.
On June 12 it has reported that the term sheet for the proposed sale of Reliance Jio’s telecom tower business to infrastructure asset manager Brookfield could be signed in the next 10 days. This would be the first step in the deleveraging process.
The two ways transfers could help Reliance Jio. One, any additional tenancy on these assets will drive down the lease rent for RIL linked to that particular asset as it gets the advantage as an anchor tenant, helping reduce operating expenditure at Jio. Two, the higher tenancy would improve inflows in the fiber SPV, leaving a surplus after commitments to liabilities and unitholders are honored.