In March, RRVL had transferred 11-12 million sq feet of warehousing assets to Reliance Logistics and Warehouse Holdings (RLWH), which was incorporated in December 2022. KKR and ADIA invested the $1.5 billion, split equally, in this company. The transaction hasn’t yet been formally announced.
The purchase was funded by way of senior debt of Rs 7,075 crore, instruments similar to equity such as subordinated non-convertible debentures (NCDs) of Rs 5,275 crore and the remainder through equity infusion, said the people cited.
The operations and maintenance (O&M) of the assets will be undertaken by Reliance Projects & Property Management Services Ltd (RPPMSL), a 100% subsidiary of parent Reliance Industries Ltd (RIL).
Both KKR and ADIA are investors in RRVL and Jio Platforms, which runs RIL’s digital and telecom businesses, as well. KKR and ADIA declined to comment. RIL didn’t respond to queries.
RRVL had transferred warehousing assets worth Rs 5,150 crore in October last year to an InvIT called Intelligent Supply Chain Infrastructure Trust. The warehouses are parked in a special purpose vehicle (SPV) known as Intelligent Supply Chain Infrastructure Management Pvt. Ltd (ISCIMPL). However, the Securities and Exchange Board of India (Sebi) only allowed RRVL to transfer warehouses greater than 100,000 sq ft in area into that InVIT. Assets that are smaller in size had to be transferred to RLWH, which is not an InVIT.
Just like the InvIT, the KKR and ADIA-backed company will also have long-tenure lease agreements with RRVL and its subsidiary Reliance Retail Ltd (RRL) to ensure cash flow stability for at least 20 years. However, it could be extended for a longer period, said people with knowledge of the matter. The investment by KKR and ADIA could go up to $2 billion in future, they said.
For the larger spaces, with a similar aggregate area of around 12.77 million sq ft, ISCIMPL has executed a warehouse use agreement (WUA) with anchor tenant RRVL for a tenure of 30 years. But it will actively market the warehouse assets to new customers to generate additional sources of revenue and cash flows over time, said a CareEdge Ratings report in August.
RRL houses the core retail businesses, including Reliance Digital, Jio Mart and about 19,000 brick-and-mortar stores having a total 79.1 million sq ft retail area as of FY24.
RRL is fully owned by RRVL, which also has other retail operations such as international partnerships and the fast-moving consumer goods business. RIL owns 85% of RRVL, which in turn owns more than 99% of RRL. Since its inception in 2006, RRVL has grown into India’s largest retail conglomerate by revenue, scale and profits. In FY24, it raised Rs 17,814 crore from various global investors including QIA for the core retail business. Parent RIL also infused Rs 2,500 crore during the March quarter, as per company disclosures.
“The warehouses transferred to the company (RLWHL) remain critical for the smooth operations of RRVL and RRL,” Crisil analysts said in March. “RRVL and RRL have huge warehousing space requirement given their own growth and expansion plans. RRL is expanding by opening new stores and also augmenting its online presence including Jiomart business both of which will require incremental warehousing space to support the growth.”
As per RIL’s FY23 annual report, investments in boosting supply chain infrastructure remained a priority to deepen warehousing and fulfilment capabilities, with the addition of 12.6 million sq ft of warehouse space during the year. Liquidity is supported by cash and equivalents of Rs 17 crore as on March 29, 2024.
“The expected cash inflows towards warehouse service fees are expected to adequately cover the periodic debt obligation over the medium to long term. However, sustenance of liquidity will be closely monitored,” Crisil had said.
Sources said RIL had wanted a capital solution for the smaller warehouses and tapped the infrastructure funds for long-term institutional capital.
“The rationale is to keep the RRVL balance sheet asset light,” said one of the persons cited. “It has done similar sale and lease back arrangements in telecom fibre, towers in the past to keep the core balance sheets of the telecom and retail company capital light.”
In 2020, RIL raised Rs 7,558 crore from Abu Dhabi Investment Authority and Saudi Arabia’s Public Investment Fund for a 51% stake in Digital Fibre Infrastructure Trust, which was set up to monetise its fibre optic network assets. Similarly, it unlocked value in Jio’s telecom towers when Singapore’s GIC, Brookfield and Canada’s British Columbia Investment Management Corporation (BCIMC) invested Rs 25,000 crore to buy the portfolio.
