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How are Jio Platforms and Reliance Retail Helping Reliance Industries Unlock Hidden Value?

Founder and CEO, Transfin.
Sep 5, 2020 1:34 PM 2 min read
Editorial

“I have fulfilled my promise to the shareholders by making Reliance net debt-free much before our original schedule of March 31st 2021,” Mukesh Ambani said in a press statement on June 19th 2020.

His oil-to-chemicals conglomerate, comprising roughly 330 subsidiary companies, had a consolidated net debt of ₹1,61,035cr ($21bn) as at March 31st 2020. 

But in less than two months, the group sold stakes in their digital services arm/“western-investor-darling” Jio Platforms to raise almost the entire amount, while implying a valuation of $58bn-$65bn for the subsidiary alone. Let’s assume an average number of $62bn.

FYI: the lower number is implied for Facebook and Google; the higher number for other investors, who paid a 12.5% premium. 

Net debt problem solved. 

So that’s it?

Hell no!!

The group meanwhile raised another $7bn through a mega rights issue. This time via Reliance Industries Limited (RIL), the group’s “very public” parent company.

Done? 

Hardly. Jio Platforms - before selling its stakes - was converted into an “asset-light” company by transferring its fiber assets to a separate SPV. Saudi Arabia’s Public Investment Fund (PIF) may invest up to $1bn (in addition to the $2.2bn PIF put in Jio Platforms already). The same playbook was followed when it came to Jio Platforms’ tower assets, which separately raised $3.4bn from Brookfield.

Ok! Now are we done?

Nope. The newest grapevine is of Silver Lake Partners in talks to put in $1bn, now within another subsidiary company Reliance Retail, valuing the entity at $57bn. 

 

Sum is Less than the Parts

Now the market cap of RIL, that is, the group’s listed parent company, which should have technically included Jio Platforms’ fundamental value of $62bn (fairy dust till April 2020), was around $100bn before the first stake sale of Jio Platforms.

Reliance Retail is now being valued at $57bn on a stand alone basis. 

If you just add up Jio Platforms and Reliance Retail’s current valuation ($62bn + $57bn), we exceed the “pre Jio Platforms stake sale” market cap of RIL.

Where is the room for refining, petrochemicals, oil and gas, which still comprised almost 70% of RIL’s consolidated revenues? 

It doesn’t end there......

RIL is today trading at $185bn. It appears like the value revelation driven by Jio Platforms and Reliance Retail has “unlocked” an additional $85bn of formerly hidden market capitalisation for the group (assuming nothing else was changed). 

Welcome to the equity markets!

FIN.

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