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Recent Investments In RIL’s Jio – The Master Plan

ProCapitas

Shubham Agarwal

Shubham Agarwal

Reliance Jio Investments

  1. It is of no surprise that multiple investments in RIL Jio’s platform are portrayal for RIL Chairman Mr. Mukesh Ambani’s thought of making RIL Debt Free by 2021.
  2. But these investments bring in multiple questions to mind –
    1. Does this indicate stronger faith in Indian Economy?
    2. Or is just some big game plan to make RIL Debt-Free?
    3. What about the RIL right issue?
    4. Were recent rapid investments being to set the right issue price in justifiable range?

Indian Economy & Investments in RIL’s Jio

Though it’s no doubt that, with China being devasted with COVID impact, foreign companies are looking at India as a new hub, these investments might not be the exact indicators. Since long, RIL has been trying to reduce its debt. With the delay or a potential call-off Saudi Aramco deal, these investments seem to be a hedge to their debt-free plan.  In less than one month, with 3 major investments, the conglomerate is believed to have reduced its debt by 40%. These invests set the Jio enterprise value at whooping 5.15 Lakh Crore with %stakes at (RIL – 86.54%, Facebook – 9.99%, Vitsa – 232%, Silver Lake – 1.15%).

Though it might be the faith in the Indian economy, it looks more like RIL trailer plan to launch its big game –
RIL RIGHTS ISSUE

What is RIL Right Issue

After the March market crash, RIL has recovered rapidly – mainly driven by the major investment in Jio. It is believed that RIL can potentially open the Right Issue on 22nd May. If all goes well below may be the structure of the issue –

  1. To all the current shareholders, RIL is expected to open Right Issue at 14% discount (to the closing price as on April 30). This would allow RIL to raise ~Rs. 53,125 Crores.
  2. The expected right issue ratio is 1:15 – if you hold 15 shares in the company, you would be entitled to one new right issue share
  3. In case the right issue remains unsubscribed, promoters & Mukesh Ambani himself might buy the difference

If the right issue was in pipeline, the causation between recent investments and mindset to inflate stock price seems possible.

Along with all these dynamics, it is no doubt that RIL is run by great minds and its Jio platform has great potential. This right issue for sure would be a great potential for current RIL shareholders. But for those who don’t own the share, with current spiked valuation – Recent sharp V shaped recovery increase, the investment in RIL at this stage might not be attractive

It is no doubt that RIL is going beyond reach to complete its promise of making RIL debt free. Thus, all these multiple investments are just the formulary to build on biggest right issue in Indian history.

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