PE firm Silver Lake eyes stake in Reliance Retail: Report

US private equity firm Silver Lake Partners is said to be in talks to invest USD 1 billion in the retail arm of Reliance Industries at a valuation of roughly USD 57 billion.

Financial Times reported that the company is looking to sell about 10 per cent of Reliance Retail.

"Silver Lake is in talks to invest about USD 1 billion in Mukesh Ambani's Reliance Retail," it said, citing sources.

Reliance and Silver Lake did not immediately respond to e-mails sent for comments.

After monetising Jio Platforms -- which houses the firm's telecom arm and digital ventures, richest Indian Mukesh Ambani is looking to rope in investors in the retail business.

Last week, Reliance acquired the retail and logistics businesses of Future Group for ₹24,713 crore to boost its retail vertical.

Silver Lake was the first US private equity firm to invest in Jio after tech giant Facebook took a 9.99 per cent stake in the company for ₹43,573.62 crore. Silver Lake bought 2.08 per cent in Jio in two tranches for a total of ₹10,202.55 crore.

Rival private equity groups KKR, Vista and General Atlantic followed Silver Lake to take stakes in Jio. Other notable investors included Google and Abu Dhabi's sovereign wealth fund Mubadala.

Commenting on the report, CLSA said the USD 57 billion valuation for Reliance Retail is 15 per cent lower than the value it had assigned for the company.

"Reliance is reportedly in discussion with Silver Lake Partners for a USD 1 billion stake sale in Reliance Retail at a valuation of USD 57 billion (implying 1.75 per cent stake sale)," it said.

All investors in Jio Platforms including Silver Lake have been offered a chance to explore investing in Reliance Retail, it said.

Ambani had at the company's recent annual general meeting stated that it had been approached by strategic/financial investors for a stake in Reliance Retail.

CLSA said as this possible stake sale would also include the recently acquired retail business of Future Group, the valuation suggested in the report is lower than its expectations.

"Interestingly, this is also a massive 30 per cent lower than the rumoured private market valuation of retail," it said.

Using the valuation of the recent deal in Jio Platforms (enterprise value of USD 65 billion), the proposed deal for oil-to-chemicals business with Saudi Aramco (EV of USD 75 billion) and the one proposed in retail (USD 57 billion), gives a USD 197 billion EV for Reliance's three segments.

"Adjusting for minority interest (USD 25 billion) in Jio and Retail as well as USD 4.6 billion of net debt likely to remain by March 2021 gives a value of USD 174 billion, net to Reliance. This means the current market-cap (adj for treasury) offers no upside based on deal benchmark valuations," it added.

Unlike the Jio Platform deals, this deal valuation may be a bit underwhelming as it does not bring in a new marquee strategic player and the fact that debt is no more seen as a concern, CLSA said.

Reliance, it said, may now have exhausted its large near-term inorganic triggers even as organic earnings may struggle to deliver big surprises in the current environment.