NEW DELHI: Reliance Industries on Wednesday announced a major investment from technology giant Facebook in its digital venture. The deal will see Facebook get a 9.9% stake in Jio Platforms — an RIL subsidiary which owns Reliance Jio — and a board seat for an investment of $5.7 billion (Rs 43,574 crore). The investment values Jio Platforms at Rs 4.62 lakh crore, according to RIL, and is the largest tech sector FDI deal in India so far.The announcement comes at a timely juncture for RIL, with the carnage in global crude oil markets leaving little to cheer for the group’s cash cow petrochemicals business.
According to analysts, Facebook’s investment goes a good way in offsetting the Rs 3.5 lakh crore capital invested in launching Reliance Jio, most of which was borrowed. By September 2019, a decade of heavy borrowing had sent RIL’s gross debt soaring to over Rs 2.9 lakh crore. But, by August last year, Jio had begun turning reliable profits and Mukesh Ambani announced a shift in focus: bring down RIL’s debt and make it a “zero net debt” firm by March 2021.
The RelianceJio-Facebook deal will help the Mukesh-Ambani-led Reliance Group to reduce its debt burden and achieve its target of making it a “zero net debt”entity by March 2021. “As of December 31, 2019, net debt for the group stands at Rs 1.53 lakh crore and with Facebook’s investment, this should put RIL on course,” said financial services major Credit Suisse.
RIL is likely to use around Rs 40,000 from the Facebook investment to pare debt. The company is also exploring similar stake sales in several other verticals. But, while it had sold a stake in its retail fuel business to BP Plc for Rs 7,000 crore last year, the current condition of the oil sector raises concerns about the announced 20 per cent petrochemicals stake sale to Saudi Aramco, which was supposed to net RIL around $15 billion. “It may take several quarters for the oil markets to settle and a deal before that is unlikely,” said an industry source. For the Reliance group, the Facebook deal opens up the space for the rapid monetisation of the Reliance Jio platform. Jio will also be able to build on Facebook’s large India user base to increase the reach of its own digital initiatives, including delivery of entertainment and payment services.
Facebook, which is looking to launch its own payments system, will see similar opportunities in the access opened up to Jio’s teeming 384 million subscribers. The digital communications business promises profits in a world heading toward a recession. Internet use cases and use have increased with the lockdowns and Reliance Jio is expected to be a primary beneficiary of the trend. The vertical is one where profits are already growing fast. For the quarter ended March, analysts expect Jio to report a 32 per cent increase in revenue growth, while retail segment income is expected to remain flat.
Tech tie-up to tap kirana stores
The deal opens up the space for rapid monetisation of the Reliance Jio platform. A parallel agreement will see JioMart and Whatsapp collaborate to connect customers with kirana stores.