First Facebook, then Silver Lake: Here’s what Reliance Jio’s deal spree means for India
The investment values Jio Platforms at an equity value of ₹4.90 lakh crore and an enterprise value of ₹5.15 lakh crore.
Reliance Jio on Monday announced that the US-based equity firm Silver Lake was investing a sum of ₹5665.75 crore in Jio Platforms. The investment values Jio Platforms, which includes, digital services like Reliance Jio, MyJio, JioCinema, JioNews, JioSaavn and JioMart among others, at an equity value of ₹4.90 lakh crore and an enterprise value of ₹5.15 lakh crore.
Interestingly, this deal comes just two weeks after Facebook acquired a 9.99% stake in Reliance Jio by investing $5.7 billion or ₹43,574 crores. This deal made Facebook the largest minority stake holder in Reliance Jio. It also raised the value of Reliance Jio to $65.95 billion or ₹4.62 lakh crore, making the Chairman and Managing Director of Reliance Industries, Mukesh Ambani, the richest man in Asia.
It seems that Reliance Jio is on a 'deal spree' off late. One major partnership after another has not only increased the wealth of its executives but it has also increased the value of the company giving it the much needed impetus to expand its digital services at a time when the oil industry isn't doing well globally due to an exponential decline in demand owing to the Covid-19 pandemic.
These deals also raise several questions. What do these deals mean for Reliance Jio and, by extension, India?
Well, there are several facets to this, one major part of which relies on Jio's partnership with Facebook.
The Facebook-Jio partnership not only brings in extra (and much needed) equity to Reliance Jio's vault, but it also brings in smaller deals that will help the Indian giant to expand its services and strengthen its stronghold in the Indian subcontinent. For starters, the partnership focuses on digitising 60 million micro, small and medium businesses, 120 million farmers, 30 million small merchants and millions of small and medium enterprises in the informal sector. In addition to that, Jio Platforms has also entered into a partnership with WhatsApp wherein the two companies will focus on expanding the reach of JioMart to support small businesses via the messaging platform. Simply said, the partnership focuses on fulfilling Reliance Jio's goal of digitising 1.3 billion Indians.
Facebook, in return, gets to make in-roads in India, which is the second largest Internet market after China. The partnership could particularly benefit the company's gaming, virtual reality, payments and video streaming services, all of which are yet to make a mark in India.
The Silver Lake investment builds on top of that. While the Facebook deal values Jio Platforms at an enterprise value of ₹4.62 lakh crore, the Silver Lake deal pushes Reliance Jio's enterprise value up to ₹5.15 lakh crore which represents a 12.5% premium to the equity valuation of the Facebook investment. In essence, the deal gives Reliance Jio more equity to expand its services. It also helps the company's aim of acquiring a debt-free status by March 2021. Reliance Industries Limited (RIL) has also been in talks with Saudi Aramco for sale of a 20% stake in its oil-to-chemical business for an asking amount of $15 billion. Additionally, RIL has tied up with BP Plc for fuel business as it targets to have a debt-free status by next year, a PTI report says.
"The defining deal was the FB investment, which pegs the value of Jio Platforms (including Jio itself) at over $61 billion. This may have seemed a high valuation, but this is a strong strategic play for Facebook as well (as for Jio beyond just the cash inflow and valuation) - the heft and policy influence it gave FB, the commerce and payments in-roads it gives WhatsApp, etc. And it takes RIL closer to its plans of going zero-debt by March 2021," policy consultant Prashanto K Roy said in a statement to HT Tech.
Now, here's an interesting question - While the deal with Facebook is a strategic partnership, what's in it for Silver Lake?
"Silverlake now is riding in at nearly the same valuation. As a pure PE firm (for whom there are no other strategic interests as there are for FB and its other products) this valuation sounds high, but Silverlake clearly sees the Jio Platforms going up well beyond $65 billion in equity value," Roy explained.
However, what might strike a bit odd to onlookers is the timing of these deals. On one hand, the Covid-19 outbreak has stagnated growth in India and left the country's economy in a mess, but on the other hand, Reliance Jio is soaring high.
Roy explains that while Covid-19 has hit traditional businesses hard, digital services and platforms, on the other hand, are growing exponentially. Netflix has added 15.77 million paid subscribers in this quarter, Spotify's paid music user base now stands at 130 million, and Google Meet is adding 3 million users everyday. Jio Platforms, in India, are in the centre of this trend and so Reliance Jio wants to cash in on the growth of digital platforms in the country. Or as Roy puts it, the company "is planning to monetise the digital platform".
As far as India is concerned, these deals will provide a big boost to the government's 'Digital India' dream, which in turn should alleviate the masses - Jio wants to digitise 1.3 billion people in India, remember?
Reliance Industries publicly launched its telecom wing Jio in September 2016, which disrupted the Indian telecom industry completely. The company wants to repeat the success of its telecom wing with Jio Platforms by building up on the platform that it already has.
"This is a time when digital platforms are at their strongest, and Jio is at the forefront. Traditional businesses are suffering, but digital platforms and especially Jio have been shining, in stark contrast. For India, which wants to take a billion people digital, this is an endorsement of the power of digital to drive the economy with the clear caveat that digital alone can't stop the Indian economy's slide downward, while MSMEs and other sectors struggle," Roy said.