What Does The Facebook Deal Mean For Reliance Industries?

On Wednesday, Reliance Industries Limited (RIL) in a stock exchange filing announced that Jio Platforms Limited and Facebook Inc have signed a binding agreement for the American social media giant's investment of Rs 43,574 crore in Jio.

"This investment by Facebook values Jio Platforms at Rs 4.62 lakh crore pre-money enterprise value ($65.95 billion, assuming a conversion rate of Rs 70 to a US Dollar). Facebook's investment will translate into a 9.99% equity stake in Jio Platforms on a fully diluted basis," RIL said in its statement.

"The transaction is subject to regulatory and other customary approvals," it added.

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Key features of the Facebook-RIL deal

• This is the largest investment for a minority stake by a technology company anywhere in the world.
• Facebook will become Reliance Jio's largest minority shareholder.
• It is the largest FDI (Foreign Direct Investment) in the technology sector in India.
• The investment values Jio Platforms amongst the top 5 listed companies in India by market capitalization.
• Reliance Retail Limited and WhatsApp have entered into a commercial partnership agreement to expand its business on the JioMart platform using WhatsApp by supporting small businesses.
• FB and Reliance Retail will work together to enable consumers to access the nearest Kirana shops who can provide products and services to their homes by transacting with JioMart using WhatsApp.

How will it help RIL?

Debt easement

In August 2019, during the Annual General Meeting, Chairman Mukesh Ambani had pledged to cut the Reliance group's net debt to zero by March 2021 from about $21 billion (as of March 2019), reassuring investors' worries of the company's liabilities.

As of 31 December 2019, the company had reported net debt of Rs 1.53 lakh crore.

The Facebook deal puts RIL on track for its zero debt plans. This is in addition to its ongoing talks to sell 20 percent of its oil to chemicals business to Saudi Aramco and a stake in its tower business to Canadian private equity firm Brookfield Asset Management.

Reliance Jio

Facebook has the most number of users of its platforms (WhatsApp and Instagram included) in India than in any other country in the world. The rapid growth of internet usage in India, thanks to cheap rates offered by the Jio network and affordable smartphones, has only added on the time Indian users spend over one of Facebook's social media platforms.

Facebook has been always interested in investing in India. It has bought stakes in two other Indian digital platforms, - Meesho, a social commerce company and Unacademy, an online education startup.

On the other hand, Jio has been consistent with its promise to provide value to customer's money with its Jio Digital Life. Jio has created an eco-system comprising network, devices, applications, content, service experiences using technology like Broadband connectivity, Smart Devices, Cloud and Edge Computing, Big Data Analytics, Artificial Intelligence, Internet of Things, Augmented and Mixed Reality and Blockchain.

This deal will add value to the conglomerate's technology/telecom arm that plans on being separately listed in a few years.

Reliance Retail

The stake sale in Jio platform is to expand RIL's latest venture-JioMart. In its statement, the company said that its goal with the Facebook investment is to help expand opportunities for "businesses of all sizes", it said.

"Our focus will be India's 60 million micro, small and medium businesses, 120 million farmers, 30 million small merchants and millions of small and medium enterprises in the informal sector, in addition to empowering people seeking various digital services," it said.

Taking advantage of Facebook's existing reach of WhatsApp in India, Kirana Shop partners of JioMart will be able to serve more customers and increase profitability, in turn helping Reliance Retail.

Over the years, RIL has been pushing growth and reach of its consumer-based businesses to reduce its dependence on oil segment and prepare itself for the digital future of India. The Facebook deal fuels that goal.