This comes on the back of reports of Saudi giant Aramco in discussions to buy a 25% stake in Reliance Industries’ refining and petrochemical business for $10-15 billion.
“Softbank has long been seen as a potential investor in Jio,” JPMorgan said in a research report. “For the past 2 years, our conversations with investors have highlighted expectations of Softbank investing in Jio and hence the news flow is not surprising.”
It, however, remains to be seen how much money does Softbank actually put in, what the implied equity valuation is and if the e-commerce venture is included in the Jio entity.
It was reported that SoftBank’s Vision fund is currently undertaking due diligence to buy a stake in Jio Infocomm, which in September 2016 launched pure play fourth-generation or 4G technology-based telecom services and within a span of two years have become India’s third largest telecom company with highest monthly subscriber additions.
Both Reliance and SoftBank spokespersons declined to comment on the matter.
“In our view, for a meaningful de-leveraging, investors would likely want to see an equity inflow of more than $5 billion from a single investor or a combination of investors,” JPMorgan said valuing Jio at $50 billion.
It, however, put implied equity value at $25 billion. Reliance Retail was valued at an implied equity value of $35 billion.
“A potentially smaller equity sale, which although would establish a larger equity value of Jio, would not be seen as a meaningful positive, in our view,” it said. “We also need to see what the potential stake sale would involve. More importantly, from a stock price perspective, we believe the potential investment would have to be an equity investment in Jio and not in the proposed InviT as that would be a quasi-debt investment.”
As of now, Jio is the carriage and content vehicle, while Reliance Retail is the offline retailer. It remains to be seen where the eventual commerce would sit - Jio or Retail, and whether it would be part of any Jio equity stake.
“Overall, we maintain our view that while the earnings environment for the company is deteriorating with downside risks to refining and petchem (petrochemical), stock multiples would keep on moving higher on expectations of potentially large stake sales on higher than current implied equity values for the various businesses,” JPMorgan said.
In a separate report, HSBC Global Research said RIL’s consolidated adjusted net debt has declined to $33.2 billion in the Q4 FY19 that ended on March 31, from $42.7 billion in Q3.
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