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Why Reliance Jio Is Planning To Borrow $1 Billion

Reliance Jio Infocomm is getting ready to borrow about $1 billion to buy telecom equipment, start a range of financial services to complement what it already offers subscribers and unveil its home broadband pricing.

The mobile phone operator plans to raise about $1 billion (Rs 6,871 crore) via offshore loans that will be guaranteed by the Korea Trade Insurance Corporation to fund purchases from South Korean companies, said three people with knowledge of the matter.

Reliance Industries, Jio’s parent company that’s controlled by Mukesh Ambani, is set to provide details on the gamut of financial services at its upcoming annual general meeting on August 12. It will offer these services to its 340 million users, hoping to attract more high-value subscribers. It’s not clear whether these new financial services will be provided by Jio Payments Bank — a joint venture with State Bank of India — or through a separate entity.

Jio to raise $1 billion via offshore loans to buy telecom gear
Jio is also expected to provide further details, including the pricing, of its home broadband service, which has been undergoing trials for over two years, the people said.

Reliance and Jio didn’t respond to ET’s queries.

Third-party Insurance, Health Cover

On the fund raising, the Korea Trade Insurance Corporation (K-Sure), South Korea’s official export credit agency, will guarantee consignments imported by India’s fastest-growing telecom operator, which needs to expand its 4G and fibre network to keep pace with surging data consumption and buy spectrum to offer 5G services.

“Jio is likely to procure telecom equipment from companies like Samsung Electronics and Ace Technologies Corp.,” one person told ET. K-Sure supports domestic exports.

While the loan is likely to have a 10-year maturity, it could be priced 81 basis points over the London Interbank Offered Rate (LIBOR), the people said.

“The K-Sure guarantee is aiding a reduction in borrowing costs,” said another executive involved in the matter.

Jio is appointing foreign banks such as HSBC, Australia and New Zealand Bank (ANZ), Mitsubishi UFJ Financial Group, Citi and JP Morgan to help syndicate the loan. The banks could not be contacted immediately for comment.

This would be the fifth facility that K-Sure will cover for the Reliance group in six years and follows an amount of about $500 million that Jio initiated to raise from overseas earlier this month. The company had debt of Rs 75,000 crore at the end of June.

The financial services that Jio is expected to roll out include third-party insurance and health cover.

“Jio will also help in selling or cross-selling retail products ranging from insurance to bonds,” said an industry veteran familiar with the matter. The person added that Jio may offer demat account services, which allow investors to hold securities in electronic form.

Reliance has started putting together a top management team for the new services without tapping Jio’s talent.

“The group wants to keep the manpower and their duties segregated from the main team of Jio,” said another person.

In India, many insurance and pension products, along with an array of retail credit lines including home, auto and consumer loans, are offered by nonbanking finance companies, or shadow banks, which are regulated by the Reserve Bank of India.

Following defaults by Infrastructure Leasing & Financial Services, NBFCs in India have been engulfed in a funding crisis, with banks wary of lending to them and mutual funds, pension funds and insurers not keen to subscribe to their bonds.

However, experts noted that branded nonbanking entities including Bajaj Finance, Mahindra Finance, HDFC, Tata Capital and Tata Housing Finance stand out in the sector, drawing a cushion from their parentage, and Reliance should not be adversely affected if it takes the NBFC route.

“A Reliance name will add credibility and it will be easier for banks to offer them loans,” said a market expert.

Jio, which started operations in September 2016, plans to become more than just a mobile phone operator. It wants to become a digital services provider with a presence in home broadband, enterprise business, services to small and medium enterprises and a bouquet of content and digital services, including financial offerings.―Gadgets Now

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