Facebook to invest Rs 43,574 crore in Reliance Jio for 10% stake

Mukesh Ambani controlled Reliance Industries Ltd is set to sell stake worth $5.7 billion to global tech giant Facebook -- a move that is likely to bolster the expansion of Reliance Jio.

In the largest foreign direct investment (FDI) in the technology sector, Facebook has decided to pick up a 9.99% stake in Jio Platforms Limited for a sum of Rs 43,574 crore from Reliance Industries Ltd. Both companies have signed binding agreements on this front. The deal is awaiting approvals from the regulators in India and the US now.

The entire amount of the deal 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. This would result in further Rs 18,574 crore pumped by Reliance Jio towards expansion, at a time when other telcos are reeling under severe stress.

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.

Whopping valuation

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.

As of date, customer-facing businesses, which include Jio Platform and Reliance Retail, contribute one-third of the parent company's revenues. At its peak, before bears gripped Indian market, RIL's valuation, in terms of market capitalisation, stood at Rs 10 lakh crore.

According to analysts, with this valuation of Jio, the parent RIL has valuation potential in excess of Rs 15 lakh crore.

Ambani and Facebook's Mark Zuckerberg sent out video messages speaking about the deal. "All of us at Reliance are humbled by the opportunity to welcome Facebook as our long-term partner In continuing to grow and transform the digital ecosystem of India for the benefit of all Indians," Ambani said.

The deal is expected to further fuel the growth of Jio. "Facebook has taken close to 10% stake at Rs 43,547 crore in Reliance’s Jio which means that Facebook has valued it at approximately Rs 4.4 lakh crore. Whereas Airtel’s market cap currently stands at around Rs 2.7 lakh crore. This is a big plus for Reliance and its share price is likely to shoot up (and that has already started). Besides this, the huge amount of debt that was burdening Reliance’s balance sheet would be drastically reduced with this deal. So, more efficient operations are definitely on cards," said Pranjal Kamra, CEO, Finology.

Deleveraging spree

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).

RIL has been on a debt leveraging spree in the recent past. The total debt of Reliance Industries at the end of December quarter, RIL had gross debt of Rs 3,06,900 crore and cash and cash equivalents of Rs 1,53,700 crore. The company has committed to reducing 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 financial year.

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 500,000 barrels per day of crude oil to RIL's twin refineries in Jamnagar.