RIL Readies $2.4-3 Bn Infra Investment Trust For Retail Warehousing Assets

Reliance Industries Ltd (RIL) has begun a process that could see the group unlock value in its retail business's backend warehousing and related logistical assets via an infrastructure investment trust (InvIT), a report by The Economic Times said.

Reliance Retail Ltd, India's largest retailer in terms of revenue, scale, and profit, has already begun setting the framework for the potential InvIT of its warehouse assets, having registered a trust with Securities and Exchange Board of India (Sebi) at the end of February, sources told ET.

This trust will store the warehouse assets that the group intends to monetise, they added.

Reliance declined to comment on the development.

Though preliminary and with granular details still being worked out, the petchem-to-personal-products conglomerate intends to structure the vehicle as a privately placed or listed InvIT. It has begun working with its financial and legal consultants.

In addition to registering the trust, Reliance has established Intelligent Supply Chain Infrastructure Pvt Ltd, which will likely be involved in managing the assets to be housed under the InvIT, sources said.

According to the company's memorandum of association, it has been established to build, develop, acquire, provide, manage, and operate storage, warehousing, supply chain, cold chain, logistics infrastructure, and facilities.

Reliance Retail had a warehousing portfolio of 33.6 mn sq ft as of December 31, 2022, show RIL's latest financial filings. Reliance Retail added 11.1 mn sq ft in FY22, bringing its total warehousing space to 22.7 mn sq ft. The company's warehouse area has tripled in the last three years.

Reliance Retail increased its store count to 17,225 by the end of December 2022, up from 14,412 the previous year, with retail floor area exceeding 60 million sq ft, up from 40.6 million sq ft at the end of FY22.

The assets that could be transferred to the InvIT are worth $2.4–3 billion (Rs 20,000–25,000 crore), said one of the sources, adding that more assets will most likely be added once they become operational.

The group has acquired a majority stake in Addverb Technologies, which offers warehouse automation solutions and robotic equipment for automated material handling. It has been testing 5G robots and drones for bagging lines and warehouse storage location logistics, roles that would otherwise require human intervention. 

Reliance Retail's strategy to monetise its warehouse and related logistics assets comes at a time when the company has been actively expanding its warehouse capacity.

The Rs 2,850 crore acquisition of Metro Cash & Carry India Pvt Ltd will also assist Reliance Retail Ventures Ltd (RRVL) grow its warehouse network for the B2B e-commerce platform JioMart Kirana as well as its B2C hypermarket operation, consultants working with the firm said.

Before the Covid-19 outbreak, Reliance Retail operated its own cash and carry company, Reliance Market. However, these facilities were closed and turned into warehouses and a fulfilment centre to service Kirana's e-commerce business.

"Warehousing is emerging as the new asset class for InvITs," an investment banker told ET.

"A lot of capital has gone into building top-class warehouse space for industries such as retail, e-commerce, industrials, pharma, etc. More warehousing InvITs are expected to come up, given the huge demand for warehousing space in a growing economy like India," the banker added.

Reliance's consolidation plan

Reliance Retail operates in grocery, consumer electronics, pharmacy, fashion, and lifestyle markets through brands such as Reliance Fresh, Reliance Digital, Trends, and Ajio.com. It has also launched a number of new ventures, including in Fast-moving consumer goods (FMCG) and new sectors such as beauty.

"The real value unlocking will happen once the company decides to do a similar InvIT for the storefronts," said the banker, adding, "They will wait for Nexus Malls to list for a valuation benchmark."

According to the ET's report, Nexus Select Trust REIT, India's first real estate investment trust incorporating retail assets, is expected to conduct its initial public offering in the first week of May.

RIL's step-down subsidiary is Reliance Retail Ltd. RIL owns 85.06 per cent of the subscribed equity shares of Reliance Retail Ventures Ltd (RRVL), which in turn owns 99.93 per cent of Reliance Retail Ltd ( RRL). Reliance Retail (which includes RRVL) has risen to become India's largest retail conglomerate since its foundation in 2006.

If Reliance's plans come to fruition, this will be the company's fourth infrastructure trust, following its oil pipeline and Jio telecom towers.

"The idea is similar to the pipeline and fibre-optic cable InvITs. It will consolidate all warehousing assets in the InvIT with one customer, and that is Reliance Retail, a very strong counterparty that has thousands of stores across India and millions of customers," an executive was quoted as saying by ET.

RIL raised Rs 7,558 crore from the Abu Dhabi Investment Authority and Saudi Arabia's Public Investment Fund in 2020 for a 51 per cent interest in the Digital Fibre Infrastructure Trust, which was established to monetise its fibre optic network assets.

In 2019, Reliance sold its East West Pipeline gas pipeline network to India Infrastructure Trust, an InvIT sponsored by Canadian investor Brookfield, for Rs 13,000 crore. The company also raised Rs 25,215 crore from Brookfield and other investors through its telecom tower, InvIT, in the same year.

An InvIT is made up of several entities, including the sponsor, who establishes the trust and transfers the assets to the trust; the trustee, who holds the assets in trust for the benefit of the shareholders; the investment manager, who makes decisions on acquisitions, divestments, and fundraising for the InvIT; and the project manager, who oversees the day-to-day operations of the underlying assets.