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Silver Lake picks 1.15% stake in Jio Platforms: How market experts reacted

The investment by Silver Lake is at a 12.5 per cent premium to the Facebook deal and puts the value of Jio Platforms at an equity value of Rs 4.90 lakh crore and an enterprise value of Rs 5.15 lakh crore

Written by Debashish Pachal | New Delhi | Updated: May 4, 2020 5:39:19 pm
The logo of Reliance Jio, the mobile network of Reliance Industries Ltd, is displayed at a store in Mumbai, India, on Sunday, Jan. 19, 2020. (Image source: Bloomberg)

India’s oil-to-telecom behemoth Reliance Industries (RIL) today announced that Silver Lake – a US-based private equity firm which invests in technology, technology-enabled and related industries – will invest Rs 5,655.75 crore to acquire 1.15 per cent stake in Jio Platforms, which is a wholly-owned subsidiary of RIL that works on digital apps, digital ecosystems and the mobile service.

The development comes nearly a couple of weeks after RIL inked a Rs 43,574 crore ($5.7 billion) deal with Facebook, wherein the social networking giant picked a 9.99 per cent stake in Jio Platforms.

Also Read | Explained: What the Jio deal means for Reliance and Facebook

There are more such strategic and financial investments likely to be made going ahead as the company which is led by Asia’s wealthiest businessman Mukesh Ambani tries to cut down its debt.

The investment by Silver Lake is at a 12.5 per cent premium to the Facebook deal and puts the value of Jio Platforms at an equity value of Rs 4.90 lakh crore and an enterprise value of Rs 5.15 lakh crore, RIL said in an exchange filing to the BSE.

The transaction is subject to regulatory and other customary approvals, the filing said. Reliance Jio Infocomm, which provides connectivity platform to over 388 million subscribers, will continue to be a wholly-owned subsidiary of Jio Platforms, according to the company.

Morgan Stanley acted as financial advisor and AZB & Partners and Davis Polk & Wardwell acted as legal counsels.

On Monday, the stock of RIL ended at Rs 1,435.40, down 2.16 per cent from the previous close.

How market experts view the deal

“The investment by Silver Lake Partners to acquire 1.15 per cent stake in Jio Platforms is welcome. The 12.5 per cent higher valuation in this round may be due to much smaller investment by Silver Lake (compared to Facebook) and the fact that unlike Facebook they would operationally not bring any benefit on table,” Deepak Jasani, Head of Retail Research at HDFC Securities said in a statement.

According to him, currently, private equity investors seem to have more capital than they know what to do with. “This announcement has helped to partly offset the negative effect on the stock price of subdued Q4FY20 results announced by the company on April 30,” Jasani said. HDFC Securities in its report advises investors to ADD with a target price at Rs 1,560 apiece.

However, AK Prabhakar, Head of Research at IDBI Capital, feels that the Silver Lake deal is a very small deal in comparison to the company’s existing debt. “It is a very small deal, it is a very small deal, hardly worth Rs 5,000 odd crore, they (RIL) have a debt of Rs 1,60,000 odd crore, so I feel Rs 5,000 crore will not make much of a difference to Reliance,” Prabhakar told indianexpress.com in a telephonic conversation. In a research report published on Saturday, IDBI Capital recommends investors to HOLD to the stock with a target price at Rs 1,528 per share.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services feels that Silver Lake’s investment of Rs 5,665 crore in Jio Platforms coming close on the heels of a mega-investment by the global social media giant Facebook is a clear reinforcement of faith by global majors in RIL.

“Going forward, RIL will be valued as a tech firm and not as a petroleum company. As RIL becomes a zero debt company soon, there will be increased demand for the stock from investors, both local and global,” he said in a statement.

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