Silver Lake In Talks To Buy $1 Billion Stake In Reliance Retail, FT Reports

Silver Lake Partners is in talks to invest $1 billion for 10% stake in Reliance Retail as the U.S.-based private equity group looks to deepen ties with India’s richest man, Mukesh Ambani, the Financial Times reported on Friday.

The deal pegs Reliance Retail’s valuation at $57 billion, the U.K.-based newspaper said in the report. Reliance Industries Ltd. and Silver Lake Partners didn't immediately respond to emails seeking comment.

After monetising Jio Platforms, which houses RIL's telecom arm and digital ventures, Ambani is looking to rope in investors for the retail business. On Aug. 29, RIL signed a Rs 25,000-crore deal to acquire the retail, wholesale, logistics and warehousing assets of Kishore Biyani’s Future Enterprises Ltd.

To be sure, Silver Lake Partners was the first U.S.-based private equity firm to buy into Jio Platforms after Facebook Inc. purchased 9.99% stake in the company. Silver Lake invested in Jio in two tranches, picking up a total of 2.08% stake for Rs 10,202.55 crore.

According to CLSA, an institutional brokerage and investment company, the deal as reported by Financial Times pegs Reliance Retail’s valuation 15% lower than what it had assigned to the company.

"Reliance is reportedly in discussion with Silver Lake Partners for a $1 billion stake sale in Reliance Retail at a valuation of $57 billion (implying 1.75% 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.

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. “This is also a massive 30% lower than the rumoured private market valuation of retail,” it said.

Also Read: Reliance Retail Commands $83-Billion Valuation In OTC Market

Considering the recent deals in Jio Platforms (Enterprise Valuation: $65 billion), Reliance O2C’s proposed deal with Saudi Aramco (EV of $75 billion) and the one proposed in Reliance Retail ($57 billion), RIL’s three segments have an enterprise valution of $197 billion.

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

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, the brokerage 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.