Reliance Industries to not extend guarantee on Jio debt transfer to InvITs

Reliance Industries (RIL) will not extend a guarantee on the debt that will be transferred along with Reliance Jio’s assets to infrastructure investment trusts (InvITs).

Banks will, in fact, receive only a “letter of comfort” from RIL for the medium term.

RIL, with its far better credit ratings, had raised debt from the country’s lenders for the launch of its telecom services subsidiary, Reliance Jio and given a guarantee on these loans.

In order to deleverage its balance sheet, RIL had said on April 1 that it would transfer its fibre optic cable infrastructure and tower infrastructure to two InvITs.

The tower assets are expected to be transferred at a valuation of Rs 36,000 crore to the InvIT, whereas Canadian fund Brookfield will be an investor and sponsor, say media reports.

Once the loans are transferred from RIL’s books, lenders will have to deal with the InvIT for repayments.

InvITs are akin to mutual funds. They pool sums of money from a number of investors to put money into assets (infrastructure projects) that give cash flow over a period of time. Jio has a debt of $26 billion.

Sources close to the pending deal between Reliance and Brookfield indicate that banks will “not be getting any guarantees at all from RIL on the debt that will be transferred to the new vehicle that will own the infrastructure.”

Earlier, RIL promoter entities had sold the East West gas pipeline (used for transporting gas) to an InvIT sponsored by Brookfield at an enterprise valuation of $2 billion.

A banker said with $15.41 billion or Rs 1.07 trillion out of RIL’s books, it would bring down the consolidated debt of the parent. 

But at the same time, all the loan covenants signed with RIL will also undergo a change. “Many Indian business groups are using innovative financial structures to part with debt. Many of these instruments may reduce the debt overhang but not a reduction in debt in true sense of the term,” said a senior banker dealing in wholesale debt transactions.    

When contacted, an RIL spokesperson said, “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 Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 and our agreements with the stock exchanges.”

The InvIT story

  • RIL sets up two InvITs: Digital infrastructure and tower infrastructure
  • Jio tower assets to be transferred to InvIT for Rs 36,000 crore
  • RIL in talks with Brookfield to invest in tower InvIT

With inputs from Dev Chatterjee

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