BackFacebook’s second coming with $5.7 billion Reliance Jio deal
Facebook will buy a little less than a 10% stake in Reliance JioThe investment values RIL’s digital assets at around $66 billion
PremiumMUMBAI : Facebook Inc. bet a massive $5.7 billion on the digital assets of Reliance Industries Ltd, aimed at leveraging the reach of the Indian company’s telecom assets and WhatsApp’s 400 million local users to connect small businesses and consumers in Asia’s third largest economy.
The social media giant will purchase a little less than 10% of Jio Platforms, which houses its telecom and digital businesses, becoming the largest minority shareholder, Reliance Industries Ltd said in a statement on Wednesday.
The investment, which values Jio Platforms at around $66 billion, will help Reliance Industries cut its spiralling debt pile.
Facebook’s decision to press ahead with the investment at a time the global economy has been savaged by the coronavirus pandemic signals its confidence that Indians will continue to embrace digitization and take to online shopping and payments.
At the core of their partnership lies millions of offline small businesses, whom both Jio and Facebook have been courting to integrate into their digital ecosystems.
Facebook’s attempt to introduce Free Basics, a free but restricted internet service, was banned in India in 2016 after the telecom regulator ruled that the programme infringes on the principles of net neutrality.
The valuation of Jio Platforms puts the Reliance Industries’ unit in the league of India’s largest household goods maker Hindustan Unilever Ltd and the nation’s largest private lender HDFC Bank Ltd, and almost on a par with its parent’s oil and gas business. Jio Platforms combines RIL’s digital apps and its mobile phone services unit Reliance Jio Infocomm Ltd.
The transaction, the biggest non-control minority investment by any technology company, also sets the stage for future fund- raising rounds for Jio.
The RIL stock jumped by as much as 12% in intraday trading following the announcement and closed 10.3% higher on Wednesday.
Facebook will get a board seat on Jio Platforms.
Plummeting oil prices have put a question mark on a potential $15 billion investment by Saudi Aramco in Reliance Industries’ oil and gas business that was announced in August.
“We view the Facebook investment as a structural positive for Jio. Given Facebook’s expertise in monetizing data via its platforms, it should accelerate Jio’s monetization of the vast data it collects from its 400 million subscribers (and growing). So far, almost all of Jio’s revenue is mobile tariff-based and, though the company has taken initial steps to create alternative revenue streams, we have not yet seen material revenue streams so far. The Facebook investment should accelerate the process," said JP Morgan Equity Research in a report dated 22 April.
The two companies said they will work together on major projects that will open up commerce opportunities for people across India.
“At the core of our partnership is the commitment that Mark Zuckerberg, founder of Facebook, and I share for the all-round digital transformation of India and for serving all Indians," said Mukesh Ambani, chairman and managing director of Reliance Industries.
Facebook, which counts India as its biggest market by number of users, echoed Ambani’s views.
“The country is in the middle of a major digital transformation, and organizations like Jio have played a big part in getting hundreds of millions of Indian people and small businesses online," Zuckerberg, Facebook’s chief executive, said in a post on his Facebook page.
“With communities around the world in lockdown, many of these entrepreneurs need digital tools they can rely on to find and communicate with customers and grow their businesses," he said.
In February, Facebook’s popular messenger app WhatsApp received a formal approval from the National Payments Corporation of India for payment services in India. Once the payment interface is integrated with the Jio platform, it would emerge as a serious challenger to established e-commerce players such as Amazon and Flipkart, according to analysts.
In December, Reliance Retail Ltd soft-launched its new commerce venture, JioMart, calling it “Desh Ki Nayi Dukaan".
JioMart is Reliance Retail’s offline-to-online initiative, which aims to link producers, traders, merchants, brands, and consumers through technology. The firm has been working on its new commerce plan for nearly two years.
“This will help Reliance create a strong rival to online e-commerce giants such as Amazon and further strengthen its leadership position in retail in India," said Axis Capital in its research report dated 22 April.
Law firm AZB and Partners advised RIL on the transaction, while Facebook was advised by Bank of America.
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