Reliance Jio inks Rs 43,574 crore stake sale deal with FB

Billionaire Mukesh Ambani owned Reliance Industries has announced a deal with social media firm Facebook whereby the latter would invest Rs 43,574 crore for a 9.99% stake in Jio Platforms which values its Jio Platforms subsidiary at Rs 4.62 lakh crore (US$60.4 bn at exchange rate of Rs76/US$).

The deal translates Jio’s enterprise value at Rs 733 per share. Reliance Jio partnership with a strong technological partner like FB a huge positive for a global roll out of few application which provide immense value.

FB also mentioned that they would be working on few commercial projects.

Now let us understand the contours of this deal which is by far the largest investment for a minority stake by a technology company anywhere in the world and the largest FDI in the technology sector in India.

The investment values Jio Platforms amongst the top 5 listed companies in India by market capitalization. Facebook’s investment will translate into a 9.99% equity stake in Jio Platforms on a fully diluted basis.

The deal structure seems to have meticulously worked out as it will provide an opportunity of improving leverage of the parent.

Reliance Jio will retain Rs 15,000 crore towards equity while Rs 28,000 crore will be used to redeem OCPS of RIL. Pre money equity value is Rs 4.21 lakh crore. Implied net debt for Jio Platform before transaction is Rs 41,000 crore (after debt moved to parent entity i.e. Reliance Industries).

RIL’s total net debt would also come down by 28.5% to Rs 1 lakh crore which was at Rs 1.53 lakh crore at the end of Q3FY20. This is big leap towards its intention to be net-debt free by the end of financial year.

Jio Platforms is a wholly-owned subsidiary of Reliance Industries. Reliance Jio Infocomm, which provides connectivity platform to over 38.8 crore subscribers, will continue to be a wholly-owned subsidiary of Jio Platforms.

Concurrent with the investment, Jio Platforms, Reliance Retail, and WhatsApp have also entered into a commercial partnership agreement to further accelerate Reliance Retail’s New Commerce business on the JioMart platform using WhatsApp and to support small businesses on WhatsApp.

Reliance Retail’s New Commerce platform, JioMart, is being built in partnership with millions of small merchants and kirana shops to empower them to better serve the needs of Indian consumers.

The companies will work closely to ensure that consumers are able to access the nearest kiranas who can provide products and services to their homes by transacting seamlessly with JioMart using WhatsApp.

Reliance Jio and Facebook partnership could drive improved market share gain for Reliance Jio compared to the peers. Moreover, the cross-selling opportunities with Reliance Retail could help gain ground in fast growing e-retailing market.

We believe investment by Facebook in Jio Platform would not only help in pegging the equity value of Jio Platform (that owns Jio Infocomm), but also improve the cash flow and accelerate deleveraging initiative by the company.

Net net by this transaction it is clear that with a pre money valuation of Rs 4.21 lakh crs for the Jio business, the markets would surely get a hint of the valuation gains expected here over the next 2 years when Jio is planning to go public.

This value unlocking will surely help Reliance Industries the parent company and is good news for all stakeholders here.

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