Vista Equity Partners to invest Rs 11,367 crore in Jio Platforms

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Published: May 9, 2020 3:10 AM

The rise in Jio’s ARPU (average revenue per user) during Q4FY20 was lacklustre, analysts said despite the fairly sharp 14-53% hike in tariffs in early December.

The investment by Vista in Jio Platforms may be used to redeem optionally convertible preference shares (OCPS) held by RIL, according to some analysts. The investment by Vista in Jio Platforms may be used to redeem optionally convertible preference shares (OCPS) held by RIL, according to some analysts.

Private equity investor Vista Equity Partners will invest Rs 11,367 crore ($1.5 billion) in Jio Platforms for a 2.32% stake, which will help Reliance Industries (RIL) pare its net debt further from levels of Rs 1.6 lakh crore.

The deal could see Jio Platforms becoming a stronger technology company, as both Silver Lake and Vista primarily invest in technology platforms.

The investment by Vista in Jio Platforms may be used to redeem optionally convertible preference shares (OCPS) held by RIL, according to some analysts. Together with the $5.8-billion infusion by Facebook and Silver Lake’s $750 million, the Vista investment takes the equity inflow into Jio Platforms to $7.95 billion (Rs 60,500 crore) for a stake of 13.45%.

The Vista infusion values Jio Platforms at an equity value of Rs 4.90 lakh crore, a 12.5% premium to valuation of Rs 4.62 lakh crore post the Facebook investment.

The money will come in handy. Although Reliance Jio’s operating cash flows jumped 149% year-on-year in FY20, thanks to a big jump in the operating profits and lower working capital investments, the higher capex of Rs 67,200 crore resulted in a negative free cash flow of Rs 50,700 crore. Over the past five years, Reliance Jio has reported a negative free cash flow of $24 billion, analysts at Jefferies noted.

Moreover, analysts at JP Morgan pointed out that RIL’s organic free cash flow generation for FY21 could be impacted and if the reported capex continues to be in the range of Rs 60,000-80,000 crore it would be FCF-negative again in FY21E.

The rise in Jio’s ARPU (average revenue per user) during Q4FY20 was lacklustre, analysts said despite the fairly sharp 14-53% hike in tariffs in early December.
However, the addition to net subscriptions was up 18% at 17 million, allaying concerns that the discipline in tariffs might not sustain. The lower level of churn, analysts at Jefferies noted, reflect Jio’s 7-20% discount to tariffs of Bharti Airtel’s even after the hikes.

The RIL management has said it would like to be debt-free by 2020. Analysts at Morgan Stanley said that the company continues to deleverage its balance sheet via stake sales in subsidiaries, rights issues and slowing down new investment. At the time of the Silver Lake transaction, Moody’s Investors Service had said that including the recently announced rights issue ($7 billion) and the investments by Silver Lake and Facebook, RIL had announced initiatives that could reduce net debt by about $13.6 billion from reported net debt of $21.4 billion as on March 31, 2020.

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