SoftBank eyes $2-3 billion investment in Mukesh Ambani's Reliance Jio

Masayoshi Son’s (left) SoftBank is conducting due diligence for its investment as Mukesh Ambani looks to deleverage business by selling stakes
Japan’s SoftBank is looking at buying a $2-3 billion stake in Reliance Jio, Reliance Industries’ telecom subsidiary and the country’s fastest-growing telco.

“For the past two years, our conversations with investors have highlighted the expectations of SoftBank investing in Jio and hence the news flow is not surprising,” wrote Pinakin Parekh, analyst, JP Morgan, in a report to investors. 

Mukesh Ambani-led Reliance Industries Ltd (RIL) is interested in deleveraging its balance sheet, and reports of SoftBank’s Jio investment follow last week’s news that Saudi Aramco is in talks with RIL to pick up to 25 per cent in the latter’s refining and petchem business for $10-15 billion. 

According to reports, SoftBank is conducting due diligence for its investment through SoftBank Vision Fund.

Spokespersons of both Reliance Jio and SoftBank declined to comment on the matter.

“What would be important from a stock price perspective is how much SoftBank puts in, what is the implied equity valuation of Jio, and whether the e-commerce venture is included in the Jio entity,” said Parekh.

The retail and telecom arms together contributed around 25 per cent of RIL’s 2018-19 revenue. 

SoftBank has a mobile telecom business in Japan and also owns Sprint in the US. It also has a 30 per cent stake in Chinese e-commerce giant Alibaba.

Jio had a debt of Rs 76,212 crore at the end of the March 2019 quarter, and RIL may want to reduce that. It had begun the exercise by transferring its tower and fibre assets to two infrastructure investment trusts, which resulted in a reduction in liability of Rs 1.07 trillion, and issuing preference shares of Rs 78,100 crore to RIL (through the revaluation of fibre assets), according to analysts.

Jio invested Rs 21,500 crore as capital expenditure in the March 2019 quarter, and the cumulative investment so far has been around Rs 2.9 trillion. 

“With most of tower and fibre (except last-mile) capex being done by InvITs, we think Jio’s capex should decline in FY20,” noted Anil Sharma, analyst, Nomura.

An analyst who did not want to be named said, “RIL may be looking at an equity investor in Jio to continue investments as it continues to keep offering services at low tariffs.”

RIL Chairman Mukesh Ambani last year announced a plan to integrate the telecom and retail entities through a consumer platform called New Commerce. However, despite analyst speculation that it would be launched this year, the management has not indicated any timeline for the rollout. 

RIL has, however, continued to add a number of ancillary tech platforms like Haptik, EasyGov, Saavn and Reverie over the year to create platforms similar to Baidu or Alibaba, which offers e-commerce, entertainment, finance and many other facilities to consumers.  />
With inputs from PTI