Reliance Jio, Facebook's Rs 43,574-crore deal explained

In a bid to reduce its debt, India's most valued company Reliance Industries Ltd (RIL) will be issuing fresh equity in its fully-controlled digital subsidiary Jio Platforms Limited to Facebook Inc -- which will make up 9.9% shareholding of the company.

The deal will fetch a whopping sum of Rs 43,574 crore for the Reliance Industries Ltd -- the entire amount for which will go to Jio Platforms. The company will use Rs 25,000 crore from it to repay its existing debt, while the remainder would be used for further expansion.

Also read — Facebook to invest Rs 43,574 crore in Reliance Jio for 9.9% stake

The deal has valued Jio Platforms at an astounding Rs 4.62 lakh crore ($60.17 billion at the current exchange rate). The investment values Jio Platforms amongst the top five listed companies in India by market capitalization, only behind parent Reliance, TCS, HDFC Bank, and HUL.

Jio Platforms, a wholly-owned subsidiary of Reliance Industries Ltd (RIL), houses digital services of the group. Reliance Jio Infocomm Ltd, with 388 million subscribers, is a wholly-owned subsidiary of Jio Platforms.

This is 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.

Earlier, the board of Reliance Industries had approved the formation of a wholly-owned subsidiary for its digital business and the infusion of Rs 1.08 lakh crore in it, which will be used to reduce Jio's debt. The Rs 1.08 lakh crore investment will be in the form of a rights issue of optionally convertible preference shares (OCPS).

Also read — Reliance shares jump 8.34% after Facebook-Jio deal

The total debt of Reliance Industries at the end of December quarter was Rs 3,06,900 crore and cash and cash equivalents of Rs 1,53,700 crore. The company has committed to reduce its net debt to zero by March 2021. The company's net debt -- short-term and long-term debt minus that cash flows -- stood at Rs 1.54 lakh crore at the end of the previous quarter.

Prior to this, RIL had entered an agreement to sell 20% stake in its refining and petrochemicals business for $15 billion (over Rs 1 lakh crore) to Saudi Aramco. As part of that deal, Aramco will also supply 5,00,000 barrels per day of crude oil to RIL's twin refineries in Jamnagar.

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.

The deal is awaiting approvals from the regulators in India and the US now.

"The synergy between Jio and Facebook will help realise Prime Minister Shri Narendra Modi’s ‘Digital India’ Mission with its two ambitious goals — ‘Ease of Living’ and ‘Ease of Doing Business’ – for every single category of Indian people without exception. In the post-Corona era, I am confident of India’s economic recovery and resurgence in the shortest period of time. The partnership will surely make an important contribution to this transformation,” said Mukesh Ambani, Chairman and Managing Director, Reliance Industries.

The shares of RIL jumped after the announcement and surged by 8.34% after the announcement. The company's shares, at the time of filing this copy, stood at Rs 1,330.50 per share, up by Rs 94.45 (7.64%).