In the largest FDI in the Indian technology sector, US Internet giant Facebook will be buying 9.99% stake in Reliance Industries Ltd’s digital unit Jio Platforms Ltd, for $5.7 billion (more than Rs 43,450 crore). While helping Reliance pare its debt of nearly Rs 3 lakh crore, the deal will also give the oil-to-telecom giant access to the over 400 million-strong database of WhatsApp, as it seeks to jumpstart its commerce business under JioMart. Facebook, in turn, makes its long-awaited foray into Indian telecom space.
The deal has come at a time when global mergers and acquisitions have hit roadblocks due to the COVID-19 crisis.
EXPLAINED | What the Jio deal means for Reliance & Facebook
RIL said that concurrent to the investment, Jio Platforms, Reliance Retail Ltd and WhatsApp, which is owned by Facebook, have reached an agreement to “further accelerate” business on JioMart. Under this, the company said, it would offer consumers the ability to access the nearest kirana, which can deliver products and services after transactions via JioMart using WhatsApp.
“In the very near future, JioMart and WhatsApp will empower nearly three crore small Indian kirana shops to digitally transact with every customer in their neighbourhood. This means all of you can order and get faster delivery of day-to-day items from nearby local shops. At the same time, small kiranas can grow their businesses and create new employment opportunities,” RIL Chairman and Managing Director Mukesh Ambani said Wednesday.
The deal also opens up WhatsApp’s entire user base for Reliance, including the customers on rival telecom platforms. “With WhatsApp firmly entrenched as the dominant OTT messaging platform in India, Jio will now have a channel for promoting their other digital services directly to the customers of their competitors. Moreover, over time it’s also possible to expect Jio to use the WhatsApp relationship to try convert Bharti (Airtel) and Vodafone Idea customer to their network,” Bernstein Research said in a note.
With its largest investment yet in India, the California-based Facebook has finally succeeded after multiple attempts to get into Indian telecom space. Jio Platforms Ltd owns wireless broadband, home broadband, enterprise broadband and narrowband internet-of-things businesses, as well as a bouquet of digital apps. The transaction puts Jio Platforms at around $66 billion in enterprise value (which includes the market capitalisation of a company as well as the debt and cash on its balance sheet).
Since the deal with Reliance is only for a minority stake, neither Facebook nor RIL is bound in any way to an exclusive arrangement. So, apart from Jio, Facebook can look at similar partnerships on other platforms, including within WhatsApp.
In 2015, the social media giant had attempted to offer free Internet services to Indian customers under its FreeBasics platform, but the plan was foiled by telecommunication regulator TRAI, which disallowed differential pricing.
Now, as per a banker, “Not only does Facebook get a readymade platform with a huge customer base, it may have avoided the big hurdle of spending time on getting approvals for doing business in India.”
The move to part with a stake in Jio Platforms is in line with Reliance’s plans to divest shares in its units to bring down the company’s debt, while enhancing its equity value, in case it goes in for an initial public offering. The company’s outstanding debt as on September 30, 2019, was Rs 2.92 lakh crore ($41.2 billion), while cash and cash equivalents were at Rs 1.35 lakh crore ($19 billion).
Earlier, Reliance signed an agreement to divest stake in its telecom towers business to Brookfield, and is in talks to sell a stake in the optic fibre business, which has been transferred to an Infrastructure Investment Trust. A top investment banker said that the Facebook deal is in line with Mukesh Ambani’s AGM speech last year, where he said he was working with global leaders and would make the company debt-free by March 2021.
“It is a well-thought-out plan and is being executed to perfection. It must be understood that with the scale of his businesses — oil & gas, telecom, digital and retail — there is no room for error. I understand that Aramco’s due diligence is currently on (Reliance plans to sell 20% stake in its refining and petrochemicals business to Saudi giant Aramco) and the RIL Group is also learnt to be working on bringing in a global strategic player into its retail business,” the investment banker said.
Analysts expect Reliance to now further expand on the digital front. “Facebook can help Jio move to the next level as they have the expertise, technology and global talent”, while relieving its debt concerns, said an analyst with a global research firm.
As per the India head of a global investment banking firm, “What Reliance is doing is creating a permanent business continuity plan. The business will not be dependent now on how successful the next generation is, as it will continue to grow with the strategic partner. It is like succession planning as it covers the business from a lot of perceivable risks in the future.”
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