The deal with Silver Lake of $750 million, Facebook’s deal of $5.7 billion along with rights issue are going to strengthen the balance sheet for Reliance. We have rated Reliance local currency IDR rating at BBB flat with a positive outlook and we had said that if promoter interest, debt flow EBITDA and the leverage of the company improves to below 1.5x, then we may have to relook at things.
Jio I think is a platform which is going to become quite an essential platform for an average Indian consumer. They are combining millions of kirana shops in the platforms; WhatsApp which also had an agreement with the Jio platform has about 400 million users already in India and we have seen 90 million users at Reliance. I think what seems to us is that they have a plan to combine Jio platform with WhatsApp and make it a super app. In many countries like China, the usage is much more comfortable and more attractive towards the super app like WeChat where they can do transactions, they can transfer money, pay their bills and also on a real time basis chat with friends and also the vendors which are supplying business and services.
So I think we have to see how fully we integrate these two platforms: Jio and WhatsApp and other related features but I think going forward, the plan is to create a platform which will enable users to do all the digital transactions and at the same time the digitalisation of India is happening quite rapidly right now amid coronavirus because we have been seeing that what digital transaction or digitalisation which we were expecting it to happen over a couple of years is now happening in a matter of months.
So amid COVID-19, I think this is a good transaction and Reliance would need more money to invest in this business. If you compare India with China, India is behind in terms of digital adoption, in terms of penetration and in terms of fibre availability and China has already started 5G usage as well. So we have a long way to go and all these transactions are going to provide cash to Reliance to invest in this business.
Assuming that RIL is moving towards its debt-free target, what are your thoughts on the CFO’s commentary and the way deals are coming? Do you see their target being achieved in time?
These are large deals and it really looks that the company has committed to achieve the target of its balance sheet and have a net cash position by March 2021. But given the pace of deals which are happening and the way Reliance is doing these deals, there could be a possibility that their target could be achieved sooner. But I think it also depends on the regulatory approvals on the deals. So we will have to see how fast the regulator will provide the approvals for these transactions and if regulatory approvals are given ahead of the time, there could be a possibility that they can strengthen the balance sheet faster.
But I think from our point of view, what we have been saying is that the deals have been in line with what the management has been saying and if they achieve the net adjusted debt through over EBITDA to below 1.5 on a sustained basis, then we may upgrade the local currency IDR of BBB plus which is on a positive.