Shares of Reliance Industries touched its lifetime high of Rs 1,471, adding 2.5 percent on October 29 after the company’s board approved the formation of a wholly-owned subsidiary (WOS) for its digital platform initiatives.
The company is going to invest Rs 1,08,000 crore in the subsidiary through optionally convertible preference shares (OCPS), while subsidiary will acquire RIL’s equity investment of Rs 65,000 crore in Reliance Jio Infocomm (RJIL).
The board has approved a scheme of arrangement between RJIL and certain classes of its creditors including debenture holders for transfer of identified liabilities of up to Rs 1,08,000 crore to RIL and rights issue of OCPS aggregating up to Rs 1,08,000 crore for the purpose of payment of consideration for transfer of identified liabilities – WOS to subscribe to this issue, as per company release.
RJIL will become virtually net debt-free company by March 31, 2020, with exception of spectrum-related liabilities, it added.
“Given the reach and scale of our digital ecosystem, we have received strong interest from potential strategic partners. We will induct the right partners in our platform company, creating and unlocking meaningful value for RIL shareholders,” said Mukesh D Ambani, Chairman and Managing Director, Reliance Industries.
CLSA | Rating: Buy | Target: Rs 1,710 per share
The company is repositioning Jio as a digital major ahead of a potential stake sale, said CLSA.
The indicative OCPS conversion price suggests a value of $65-70 billion for digital business.
Morgan Stanley | Rating: Overweight | Target: Rs 1,469 per share
The recast of telecom/digital business raises focus on asset monetisation & debt reduction. Meanwhile, consolidated debt remains unchanged, but platform application moves onto the investor radar, said the brokerage.
The clarity on the corporate structure improves, while interest capitalisation concerns are lessened.
The research house expects a recovery in energy earnings after the trough seen in Q2. However, the recovery should be slow, but slowing supply should support the margins.
Nomura | Rating: Buy | Target: Rs 1,565 per share
As part of the restructuring, Jio’s liabilities will be transferred to the company’s standalone balance sheet. In an upside scenario, Jio’s valuation could be higher at $60-70 billion, said Nomura.
Going ahead, the balance sheet deleveraging remains a key theme and new structure should increase investors’ confidence in RIL, it added.
Citi | Rating: Buy | Target: Raised to Rs 1,645 from Rs 1,500 per share
According to Citi, the new subsidiary created for holding all digital assets and reorganisation has no implications for consolidated net debt.
The simplified structure to help facilitate a strategic investment and the company could be looking at not-so-distant timelines for unlocking value in Jio, it added.
At 1140 hrs, Reliance Industries was quoting at Rs 1,468.70, up Rs 34.60, or 2.41 percent on the BSE.
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News Source:- Moneycontrol