Facebook To Invest $5.7 Billion In Mukesh Ambani’s Jio Platforms
Reliance Industries Chairman Mukesh Ambani, left, and Facebook CEO Mark Zuckerberg. (Photo: BloombergQuint

Facebook To Invest $5.7 Billion In Mukesh Ambani’s Jio Platforms

WATCH | Details Of Facebook-Reliance Jio Deal

Facebook Inc. will invest $5.7 billion, or Rs 43,574 crore, in the digital and telecom assets controlled by Mukesh Ambani as the U.S.-based social networking firm plans to expand footprint in its biggest global market.

The Mark Zuckerberg-founded company will pick up a 10 percent stake in Jio Platforms Ltd., becoming the largest minority shareholder, Reliance Industries Ltd. said in a press statement. The deal values the unit controlled by India’s richest man at $65.95 billion, or Rs 4.6 lakh crore.

Of the total investment, Rs 15,000 crore will be retained by Jio Platforms, while the remaining will be used by the company to redeem the optionally convertible preference shares held by RIL in the digital business.

Earlier, Reliance had announced plans to restructure its telecom and digital business by consolidating the ownership of its platform apps/AI/cloud initiatives into a separate 100 percent subsidiary, Jio Platforms. The entity also owns the mobile telecom and broadband business. The entity’s debt will be transferred to RIL for which the parent will receive Rs 108,000-crore optionally convertible preference shares of Jio Platforms.

Facebook To Invest $5.7 Billion In Mukesh Ambani’s Jio Platforms

The restructuring was aimed at—housing the digital assets within a debt-free entity and making the new entity comparable with global platforms such as Alphabet Inc., Tencent Holdings Ltd. and Alibaba Group Holding Ltd., among others, which are largely debt-free and have created large digital ecosystems.

RIL in its analyst meet had said it received interest from strategic partners and financial investors and sees an enterprise value for the platform entity of $60-70 billion, nearly 1.7-2 times the invested capital.

The deal with Facebook will also boost Reliance’s retail platform JioMart, in a country that’s rapidly embracing e-commerce with the growing use of smartphones. Ambani has been spending billions of dollars to shape his online retail and telecom businesses in India.

The entry of Reliance Jio Infocomm Ltd. was a turning point in the telecom market as it stormed in with free voice services for life and free data to lure subscribers, prompting smaller rivals to merge or quit the market. The newer businesses, including telecommunications and retail, are likely to contribute 50 percent of RIL’s earnings in a few years from about 32 percent now, Ambani had said during the company’s 42nd annual general meeting in August.

Besides, this transaction comes at a time Ambani’s energy unit is struggling due to uncertainties emerging from the coronavirus pandemic.

RIL’s net debt stood at Rs 153,132 crore as of December 2019 and the world’s largest crude oil refinery aims to bring this to zero by the end of 2020-21. The company plans to sell a 20 percent stake in its refining and petrochemical business to Saudi Aramco, bring in strategic and financial investor in its retail and telecom business and evaluate value unlocking options for real estate and financial investments.

Facebook To Invest $5.7 Billion In Mukesh Ambani’s Jio Platforms

But that may be delayed. Bloomberg had earlier reported that the government petitioned a court to halt a proposed stake sale by RIL to Aramco.

Avadhoot Sabnis of CGS-CIMB Securities said RIL’s debt reduction is contingent solely on asset sale. RIL will need to execute on the Aramco transaction as well as execute asset/ stake sale in telecom/retail to address the large debt issue, he said in a note.

Shares of Reliance Industries jumped as much as 7 percent in opening trade on Wednesday after the deal with Facebook was announced. That compares with a 0.4 percent gain in the benchmark NSE Nifty 50 Index.

WATCH | Reliance Industries Chairman Mukesh Ambani On Facebook-Jio Deal

Here’s what brokerages have to say about the Facebook-Jio deal:

Equirus

  • Facebook-RIL deal was largely priced by the market.
  • Deal is a win-win for both RIL and Facebook.
  • Of the Rs 43,600 crore, Rs 15,000 crore will be retained in the company and Rs 28,000 crore will be used to redeem optionally convertible preference shares.
  • This partnership could drive improved market share gain for Jio compared to peers.

IIFL

  • Deal valuations largely in line.
  • Entire amount will be paid in a single go with no milestone-based funding.
  • Over the next quarter, at the consolidated level, RIL will be able to mobilise cash, which should help to offset any weakness in cash generation.
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