Tower assets: RIL closes Rs 25,215 crore deal with Brookfield

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Published: July 20, 2019 3:34:08 AM

The telecom business is now an engine of growth for RIL and is now the second largest telecom services provider with over 331 million subscribers.

The Ebitda (earnings before interest, tax, depreciation and amortisation) was up over 8% on sequentially to Rs 4,686 crore.

Reliance Industries announced on Friday that its subsidiary, Reliance Industrial Investments and Holdings (RIIHL), had entered into an agreement with Brookfield Asset Management for an investment of Rs 25,215 crore in the Tower Infrastructure Trust.
The investment is the largest foreign investment in an Indian infrastructure vehicle. With this transaction, Brookfield along with other investors now officially owns the tower assets and Jio will be one of its tenants.

Following the completion of the transaction, Brookfield will continue to grow the tower business by increasing the tenancy of the existing towers. RIIHL is the sponsor of the Trust and the Trust currently holds 51% of the issued and paid up equity share capital of Reliance Jio lnfratel (RJIPL), into which the tower assets undertaking of Reliance Jio lnfocomm was transferred. Tower Infrastructure Trust had acquired the control of RJIPL by purchasing 51% of the equity share capital for a consideration of Rs 109.65 crore.

Proceeds from the investment by Brookfield will be used to repay certain existing financial liabilities of RJIPL and for acquiring the balance 49% of equity share capital of RJIPL, currently held by RIL. The bulk of the funds will be used to pay the debt and service dues, of which RIL will get close to Rs12,000 crore.

Anshuman Thakur, Reliance Jio’s strategy and planning head, explained that the InVit route provides an efficient capital structure. “Brookfield and other investors are bringing in over Rs 25,000 crore and they will own 100% of the Tower Infrastructure Trust. The enterprise value will be a combination of this plus the debt which will go up to Rs30,000 crore. So, the enterprise value will be around Rs55,000 crore,” he said.

Earlier this year, Reliance Jio Infocomm had transferred the control of fibre and tower assets to two InVits. Digital Fibre Infrastructure Trust had acquired control of Jio Digital Fibre (JDFPL) by purchasing 51% of the equity share capital for a consideration of Rs 262.65 crore, while Tower Infrastructure Trust had acquired control of RJIPL by purchasing 51% of the equity share capital for a consideration of Rs 109.65 crore.

The telecom business is now an engine of growth for RIL and is now the second largest telecom services provider with over 331 million subscribers. In the June quarter, Reliance Jio reported a stable set of numbers on Friday. During the three months of April-June 2019, the company’s net profit rose 6% year-on-year to Rs 891 crore.

While Jio’s revenues increased 5.2% to Rs 11,679 crore quarter-on-quarter, the operating margins came in as a positive surprise, which expanded a good 110 basis points to 40.1% versus 39% in the previous quarter. The Ebitda (earnings before interest, tax, depreciation and amortisation) was up over 8% on sequentially to Rs 4,686 crore.

The senior management at Jio explained that the company has started making payments to fibre and tower companies and treat that as network expenses. Earlier these were below Ebitda line items, they said. Thakur said, “We are paying those expenses now so to that extent there was negative impact on Ebitda, which got partly compensated by increase in revenues and partly by expenses not growing in the same pace. Also, AS116 impact was there in this quarter, where long term leases have been capitalised and those are now shown below Ebitda”.

Despite good margins and revenue growth, the downward slide on average revenue per user (Arpu) continued during the quarter. Jio reported a decline of 3% in Arpu in the June quarter to Rs 122, which was slightly below Street expectations of Rs 125, however, was similar to the slide seen in the previous quarter. The company had reported an Arpu of over Rs 134 in the corresponding three months of April-June last year.

However, Thakur said, the company’s priority is getting more customers and more traction. More subscribers are moving to longer term plans with a validity of 84 days rather than 28 days, which adversarily affects Arpu, he said. Also, most people are also taking Rs 99 plan on Jio Phone when they get on-boarded which aslo has a negative impact on Arpu.

“We saw an uptick in the digital recharges in this quarter so the incentive that we provide for these agains hits the Arpu,” he added saying that the company is “happy” that with 331 million subsscribers are consuming 11.4 GB of data now, and that for the first time the company crossed 1,000 crore of data consumption.

Commenting on the consumer business’s performance, Mukesh Ambani, chairman, Reliance Industries said, “The company continues to make major strides in its retail and digital services businesses led by focus on growth markets with offerings in the right product segments and compelling value proposition”.

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