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Reliance Industries Ltd shares reached an all-time high on Friday after its subsidiary, Jio Platforms Ltd, announced an investment of 9,093 crore from Mubadala Investment Co., the Abu Dhabi-based sovereign wealth fund.

This was followed by announcements of two additional investments worth 10,230 crore. These investments take the total tally of funds raised so far to 97,886 crore (or $12.95 billion at current exchange rates).

Graphic: Paras Jain/Mint
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Graphic: Paras Jain/Mint

It seems like the digital platforms company has already achieved its planned target for fundraising ahead of its expected initial public offering (IPO). Note that in its March quarter earnings presentation, Reliance had said it has achieved half of the targeted value unlocking in Jio Platforms.

This was after Facebook Inc. made a strategic investment of 43,574 crore for a 9.99% stake in the firm. Since then, Silver Lake, Vista Equity Partners, General Atlantic, KKR and Mubadala and Abu Dhabi Investment Authority (ADIA) have together bought an 11.07% stake. Of course, they bought shares at a slightly higher valuation compared to Facebook. Their cumulative outgo stands at 54,312 crore.

Now that an over 20% stake has been sold to outside investors, it looks like Jio Platforms’ fundraising spree is pretty much done.

The latest deals ascribe Jio Platforms an enterprise value (EV) of 5.16 trillion. “Based on the EV/Ebitda ratio, this represents a 35-40% premium compared to Bharti Airtel’s India business," said an analyst at a multinational brokerage. Ebitda stands for earnings before interest, taxes, depreciation and amortization.

Also, note that pre-IPO deals assume that fair value is generally higher. On listing, therefore, the general expectation is that Jio Platforms will be valued even higher than what the Street had estimated. At the same time, a listing would mean that investors start to apply a holding company discount, which may well bring things back to square one as far as the sum-of-the-parts valuation goes. “In case of an eventual listing, the structure would gain importance, as listing of a subsidiary may prompt investors to build holding company discount in the overall valuation and the sum-of-the-parts value," IIFL Institutional Equities analysts said in a note to clients.

All eyes, therefore, are now on the much-awaited Jio Platforms’ initial share sale. Reports said the company was preparing for an overseas listing of its digital platforms subsidiary. This would peg valuations to technology giants such as Amazon, Apple and Microsoft. Reliance’s recent presentation included a slide showing 10-year market capitalisation growth technology stocks versus aggregate energy sector market cap (S&P).

“Asset-light technology companies created more value over the last decade than aggregate market capital of energy companies in the S&P," it added.

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