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Securitization between Reliance Communications Ltd. and Reliance Jio Infocomm Ltd.: Strategic Financial Analysis*

ET Cases - FLAME, 12 Pages
AUTHOR(S) : Chirputkar Abhijit- Professor, Joshi Sujata- Associate Professor, Nilesh Bamotriya- MBA Student, Pradnya Kanade- MBA Student - SITM, Pune

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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”

- 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.”

– 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). Under the agreement, RCom had to deliver 120,000 kilometres intercity fibre links to RJio. 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. The investors get benefit in the form of interest in return. Securitization is thus transformation of an illiquid asset into a security. 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)....................

Indian Telecom Scenario

India is the country with endless possibilities and similar is the case with telecommunications industry. It started to flourish post globalization reforms and now is the second-largest telecom market in the world. During the last two decades, India had a roller-coaster ride; the mobile telephony in particular has revolutionized the way we communicate, share information and through its incredible and unbelievable growth helped millions stay connected. Telecommunication services have been the driving force for overall economic development of country. They are also the prime support services needed for rapid growth and modernization of various sectors of economy..........

Spectrum Auction and Impact on Telecom Operators

The 3G AND BWA auction was held in 2010. The auction generated a series of ripples on various stakeholders of the mobile and wireless market. 3G auction was completed in the month of May and after 183 rounds of bidding clocking in INR67,719 crore of revenues for the Government. The high amount burned deep holes in operator’s pockets and they accumulated a heavy debt to support addition of new spectrum............

Securitization as a Financial Strategy in the International Market

The financial strategy aims at maximising profit and shareholder’s wealth. These objectives are met with three financial decisions i.e., investment, financing and dividend decisions. According to Mr. Narayan Murthy, “Strategy is about ensuring sustained differentiation in a changing environment for better net margins.”..............

Reliance Communication Ltd. Overview

Reliance Communications Ltd, founded in December 2002 by Mr. Dhirubhai Ambani is the country’s first telecom operator to provide Code-Division Multiple Access (CDMA) and Global System for Mobiles (GSM) services for mobiles with digital voice clarity.13 RCom is one of leading companies of Reliance Group which is listed on National Stock Exchange (NSE) as well as Bombay Stock Exchange (BSE)...............

Insights into Reliance Communications

RCom had large asset base both in core and non-core sector, this has also been reason for increase in debt for RCom. RCom asset include large chunk of real estate which also includes 135 acres land in Navi Mumbai, RCom owns 96% stake in Reliance Infratel which has about 43,000 mobile towers...........

The Environmental Scenario (RCom perspective)

RCom launched GSM in 2008, paid INR8,585 crore (Exhibit IV) for winning 13 circles out of 22 circles in India becoming the only existing operator with such high coverage.24 But these 3G spectrum auction added financial debt on the company............

Reliance Jio Infocomm Ltd. (Infotel Broadband Services Limited) Overview

RJio is a result of Mr. Mukesh Ambani’s vision to make broadband and digital services affordable to common man. The vision was to connect masses through a high-speed wireless backhaul, deliver exceptional consumer experience and enhance productivity. The first step to meet the objective was taken by acquiring 95% stake in Infotel Broadband..........

Insights into Reliance Jio Infocomm Limited

RJio had aggressive plans and deep pockets to spend on network and infrastructure. RIL invested around INR4,800 crore to buy Mahendra Nahata promoted Infotel and had plans of investing INR15,000 crore for its expansion.28 RJio strategy was to position itself amongst top players and thus was building up world’s largest next generation IP Multimedia Subsystem and had entered into deal of $100 million with Nokia networks. It also holds spectrum in 2300MHz band in all 22 circles and another 1800 MHz in 14 circles. Some INR10,000 crore investment was done in order to buy airwaves in 800MHz band..............

The Environmental Scenario (RJio perspective)

The Government of India started auctioning the spectrum to regulate the airwaves and earn revenue from the resources. The first 3G/4G auction took place in 2010 where Government collected revenue of INR38,543.58 crore.32 Infotel Broadband emerged as Pan-India winner and bagged spectrum in all 22 circles. The auction put in a lot of strain on companies looking for spectrum and increased their debts..............

Impact of the Securitization from Strategic and financial perspective:

Strategic impact:

RJio after acquiring Infotel broadband was looking to roll out services as soon as possible with minimal investment in infrastructure. The securitization process helped RJio to use the fiber optic network laid by RCom. It reduced the go-to-market time for RJio and gave them an opportunity to leverage first mover advantage...............

Financial Impact:

As the deal was announced in July 2013, its effect can be seen during the second quarter. PAT for second quarter of FY14 was INR675 crore as compared to INR102 crore of previous year’s second quarter................


RCom and RJio successfully completed and delivered the INR1,200 crore securitization deal for 120,000 km inter-city fiber agreement in July 2013. It was one of its kind securitization deals in Indian telecom sector. Subsequently, both the parties were also engaged in securitization deal for RCom’s tower business.........


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

Teaching Note Preview

Securitization between Reliance Communications Ltd. and Reliance Jio Infocomm Ltd.: Strategic Financial Analysis



India is the second-largest telecommunications market and the third-highest number of internet users in the world. The Indian mobile sector is growing rapidly and contributes substantially to India’s GDP. Thus Telecom Service Providers (TSPs) play crucial role in Indian economy. Other industries also depend on telecom industry. There is a positive correlation between mobile penetration and GDP growth in the economy.

In order to expand, TSP bought spectrum from Govt at a very high cost. As a result, TSPs were ridden with a high financial burden and repayment of debt became the major concern. At a time when TSPs were actively searching for opportunities to repay debts, securitization was used by Reliance Communications Ltd. (RCom) to overcome the issues related to debt and interest payment.

Securitization refers to raising money by providing some collateral with lenders. In a securitization process, an illiquid asset is converted into a security against which a company can raise funds from financial institutions. The funds so raised can be used by company for its strategic use and the financial institution has the right on the cash flow of the asset.

This case study discusses securitization process of RCom with Reliance Jio Infocomm Ltd (RJio). RCom has completed securitization of proceeds under the INR1,200 crore inter-city fibre agreement signed with RJio in April 2013. The proceeds from securitization have been utilized to repay high cost rupee debt, and thereby save interest cost on such debts. The company had raised foreign debt however its value increased due to foreign exchange impact of depreciating rupee. This securitization has been completed with Indian and foreign banks. The case study will discuss strategic aspects of the company and its impact on finance. It will cover systematic and unsystematic risks of the company and use of securitization process to overcome certain issues........................

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Product code: FIN-1-0038, FIN-1-0038A


India is the second-largest telecommunication market and has the third-highest number of internet users in the world. The Indian Government auctioned 3G/BWA spectrum and collected approximately INR1.06 lakh crore in 2010 and INR1.10 lakh crore in 2015 from Telecom Service Providers (TSPs) who raised debts from banks and other financial institutions to support investment in spectrum auction. For TSPs, this has resulted into huge debts and financial issues such as low profits, poor cash flows and valuations. The repayment of debt was a major concern for most of the operators. TSPs were searching for opportunities to raise cash flows to repay debts.

Reliance Communications Ltd. has made use of the securitization process to overcome the issues related to debt and interest payment. This case study discusses the securitization process used by Reliance Communications Ltd. (RCom) with Reliance Jio Infocomm Ltd. (RJio). The proceeds from securitization have been utilized to repay high cost rupee debt, and saving interest cost on such debts. The case study will discuss strategic aspects of securitization for the company and its impact on finance.

Pedagogical Objectives

The case study can be used to understand the following concepts/theories in Strategic Finance:

  • To understand the concept of securitization, its relevance in India and how it was used by RCom and RJio as a financial strategy for future growth
  • To understand the role of PESTEL factors and SWOT analysis in strategic decision making
  • To understand financial implications of the strategy on a business by discussing impact of securitization as a means of raising funds and its impact on financial statements

Case Positioning and Setting

This case study, as a pedagogical tool, can be used in either of the following:

  • MBA program – Strategic Finance course – To understand the concept of securitization and its significance as a financial strategy
  • Executive Education programs/MDPs – To sensitize the participants to the importance of securitization and its impact on the financial position of the company


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