Securitization between Reliance Communications Ltd. and Reliance Jio Infocomm Ltd.: Strategic Financial Analysis
“...RCom said that the proceeds from securitisation have been utilised to repay high cost rupee debt, resulting in significant interest cost savings for the company. The securitisation has been completed with Indian and foreign banks. Deliveries of intercity fibre links to Reliance Jio have already commenced. The total deliveries of 1.2 lakh kms intercity fibre under the Agreement are expected to be completed within the current financial year”1
- Press Release, RCom
“...Reliance Jio Infocomm Ltd. and Reliance Communications Ltd. today announced the signing of a definitive agreement for sharing of RCOM’s nationwide telecom towers infrastructure. The agreement provides for joint working arrangements to configure the scope of additional towers to be built at new locations to ensure deep penetration and seamless delivery of next generation services. Reliance Jio Infocomm Ltd. and Reliance Communications Ltd. to derive major benefits from sharing of capital and operating cost.”2
– Press Release, Reliance Industries Limited.
In April 2013, Reliance Communication Ltd (RCom) completed its 1,200 crore Inter-city Fibre Agreement with Mukesh Ambani-led Reliance Jio Infocomm Ltd (RJio).3 Under the agreement, RCom had to deliver 120,000 kilometres intercity fibre links to RJio.4 The deal involved Indian and foreign banks acting as SPV for the securitization process.
Securitization is a procedure through which an organization/company merges its different financial assets/debts to form a consolidated financial instrument which is later issued to investors.5 The investors get benefit in the form of interest in return. Securitization is thus transformation of an illiquid asset into a security.6 There are various steps in the securitization process. The process starts with lender such as homeowner or corporation initiating loan. Then securitization structure is added. A Special Purpose Vehicle (SPV) comes into picture once the firm allocates certain assets like consumer receivables. This structure is legally protected from management. Also credit rating agencies review the securities that are to be floated for investors. The SPV issues debt, divides the benefits as well as the risks among investors (Exhibit I)....................
Exhibits
Exhibit I: Securitization process
Exhibit II: Telephone Subscription in India
Exhibit III: Telecommunication and GDP relationship
Exhibit IV: Results of India’s 3G Spectrum Auction
Exhibit V: 3G Mobile Net Plans
Exhibit VI: Spectrum Share
Exhibit VII: Timelines and Observations of Rcom and RJio Pact
1 “RCom gains after completing securitization of a transaction“, http://www.business-standard.com/article/news-cm/rcom-gains-after-completing-securitization-of-a-transaction-113071100406_1.html, July 11th 2013 (accessed date:Feburary 5th 2016)
2 Reliance Industries Limited, “Press Release“, http://www.ril.com/getattachment/7b6a70bb-9eed-4ad4-864ab72222f80de5/RELIANCE-JIO-INFOCOMM-AND-RELIANCE-COMMUNICATI-%281%29.aspx, June 7th 2013 (accessed date:Feburary 5th 2016)3 Rudradeep, “Telecomtalkinfo.com“, http://telecomtalk.info/rcom-completes-securitization-of-rs-1200-cr-inter-city-ofc-dealwith-reliance-jio/107261/, July 12th 2013 (accessed date: February 5th 2016)
4 Reliance Communications Limited, “Transcript of Earnings Conference Call for the Quarter ended September 30, 2013”,http://www.rcom.co.in/Rcom/aboutus/ir/pdf/RCOM-2QFY14-Earnings-Call-Transcript.pdf, November 13th 2013 (accessed date: Feburary 7th 2016)
5 The Economic Times, “Definition of Securitization”, http://economictimes.indiatimes.com/definition/securitization (accessed date: February 8th 2016)
6 Prof. Ian Giddy (Stern School of Business), ”The Securitization Process“, http://people.stern.nyu.edu/igiddy/ABS/absprocess.pdf (accessed date: February 8th 2016)