Reliance JioInfocomm (Jio) plans to raise Rs 20,000 crore through a rights issue of optionally convertible preference shares (OCPS) to shareholders as the wholly owned unit of Reliance Industries Ltd (RIL) prepares for the next phase of expansion in an intensely competitive market.
“The board of directors at its meeting held on July 20, 2017, has decided to make a rights issue of 4 billion, 9 per cent non-cumulative optionally convertible preference shares (OCPS) of Rs 10 each for cash at a premium of Rs 40 per OCPS, aggregating Rs 20,000 crore,, Jio said in a notice to the Bombay Stock Exchange on Thursday.
The filing further stated that the amount subscribed on each OCPS will be either redeemed at Rs 50 or converted to five equity shares of Rs 10 each at any time of the company’s choosing but not later than 10 years from allotment. OCPS are corporate fixed-income securities that the investor can choose to turn into a certain number of shares of common stock after a stipulated period.
This fund-raising exercise will take the total money raised by the company via this route to around Rs 90,000 crore in the past two years. The last of these was in January when Jio raised Rs 30,000 crore.
Jio’s capital expenditure in the March quarter was Rs 18,000 crore and the company had said this would stay the same in the subsequent three-month period.
“Jio has revolutionised the Indian telecom and data consumption landscape, RIL chairman Mukesh Ambani said in a release on Thursday.
“This digital services business has been built to address the entire value chain across the digital services domain with smart applications to make life simple, beautiful and secure… This future-ready network can be easily enhanced to 5G and beyond.,
RIL has already invested more than Rs 2 lakh crore in its telecom venture, which started commercial operations last September and signed up 100 million users in a record 170 days, backed by free voice and data offers till March, triggering a brutal price war. The company has since started to charge for data – albeit much below mark rates – while voice is free for life. It raised its effective data rates marginally earlier this month.
To take on competition, incumbents have also ramped up their investments. Bharti Airtel, Idea Cellular and Vodafone India, who have invested Rs 2.3 lakh crore, Rs 1.25 lakh crore and Rs 1.35 lakh crore, respectively, as on March 2017 in their businesses, have also been raising funds to strengthen their balance sheet.
Airtel raised around Rs 6,200 crore by selling over 10% stake in tower unit Bharti Infratel late March while UK’s Vodafone Group infused Rs 47,000 crore in its India unit last September.
Idea has also raised Rs 6,500 crore via non-convertible debentures since last December alone.
Jio garnered 117 million users, or around 9% active subscriber market share, as of May end, according to telecom regulator data, but the pace of subscriber additions has slowed in the last few months due mainly to the limited number of 4G handsets in the market.
Next move
Market leader Bharti Airtel has taken on the competition by lowering its own rates, making it tougher for the newcomer. Brokerage CLSA said Jio gained 80% of its active users from smaller operators like Reliance Communications, Telenor, Aircel and Tata Teleservices, and the rest from Vodafone India and Idea Cellular. Active subscribers are those logged into the network unlike those who get a SIM card but don’t use it.
Jio sources have said that the company is once again in customer-acquisition mode after a consolidation phase in the last few months when it sought to convert users from free to paid services.
RIL is widely expected to talk about Jio’s next disruptive move – a cheap 4G feature phone supporting Voice over LTE (VoLTE) technology – at its annual general meeting on Friday.
Analysts believe this device is aimed at attracting a large section of the 400 million feature phone users who still mainly use 2G and haven’t as yet migrated to a smartphone for reasons of affordability and because they feel they don’t really need one. But the hope is that free voice and Jio apps that provide access to video and other content along with a low price – estimates start at Rs 500 – will help persuade 2G users to shift to 4G. HSBC has pegged the device cost at Rs 500 with a company subsidy of Rs 650-975.
Group unit Reliance Retail sold 1.5 million LYF phones and accessories during the June quarter, RIL said in its earnings presentation on Thursday. LYF is the company’s own brand.
Source: Economic Times