KOLKATA: On Monday, US-based global private equity major, Silver Lake Partners entered into a business agreement with Reliance Industries Limited (RIL). Under its terms, Silver Lake will invest ₹5,655.75 Crore into Jio Platforms, a wholly-owned subsidiary of RIL. The equity firm is set to acquire 1.15% stake in it. Although, the transaction is subject to regulatory and other customary approvals.
Shares of Reliance Industries Ltd (RIL) had fallen about 2% at ₹1435.4 as compared to the previous close of Rs. 1467.05, on Monday. Stock markets had come under renewed selling pressure due to this decline. The NSE Nifty was down 5%, while commodity stocks were primarily sold-off. But, as usual, for RIL stock, its digital ventures, spear-headed by Jio Platform, came to the rescue.
This investment puts Jio Platforms’ pre-monetary equity value of ₹4.90 Lakh Crore and an enterprise value of ₹5.15 Lakh Crore. This represents a 12.5% premium on the equity valuation of the recent Facebook investment announced on April 22, this year. Recently, Reliance had shored up funds by offering bonds and CPs.
Mr. Mukesh Ambani, Chairman and Managing Director, Reliance Industries, said, “I am delighted to welcome Silver Lake as a valued partner in continuing to grow and transform the Indian digital ecosystem for the benefit of all Indians. Silver Lake has an outstanding record of being a valuable partner for leading technology companies globally.. We are excited to leverage insights from their global technology relationships for the Indian Digital Society’s transformation.”
Commenting on the deal with Reliance Industries, Mr. Egon Durban, Silver Lake Co-CEO and Managing Partner, said, “Jio Platforms is one of the world’s most remarkable companies, led by an incredibly strong and entrepreneurial management team who are driving and actualizing a courageous vision… The market potential they are addressing is enormous, and we are honored and pleased to have been invited to partner with Mukesh Ambani and the team at Reliance and Jio to help further the Jio mission.”
“The investment by Silver Lake in Jio Platforms will be used for redemption of Optionally Convertible Preference Shares (OCPS) held by RIL (will go to RIL). The investment would further help in pegging equity value of Jio Platforms (owning Jio Infocomm) and also improve the cash flow thus, accelerating deleveraging initiative by the company,” Axis Capital said, in a report.
“The Silver Lake-RIL deal comes close on the heels of a major investment by the social media titan, Facebook. It had invested ₹43,574 Crore in RIL’s Jio Platforms for a 9.99% stake in it. “A second deal in less than a month of the mega RIL-Facebook deal re-affirms the strong value of Jio Platforms and global demand,” said an analyst at a domestic brokerage firm.
The infusion of these marquee investors helps RIL and Jio Platforms in two ways. Firstly, Jio will be able to leverage the global experience of Silver Lake and Facebook. Secondly, Silver Lake’s proven track record in large-scale technology companies will help increase investor trust in Jio.
“This is credit positive. Including the recently announced rights issue and investments by Silver Lake and Facebook Inc, RIL has announced initiatives that could reduce net debt by about $13.6 billion from reported net debt of $21.4 billion as on 31 March, 2020,” Vikas Halan, senior vice president, corporate finance, Moody’s Investors Service said in a statement.
This investment by Silver Lake also represents a clear indication that RIL wants to be perceived more as a tech company in the future. Furthermore, this deal is a “testament to the world-class digital platform that Jio has built, powered by leading technologies, such as Broadband connectivity, Smart Devices, Cloud and Edge Computing, Big Data Analytics, Artificial Intelligence, Internet of Things, Blockchain and Augmented and Mixed Reality,” said Jio.
Digital services now account for 23.9% of the company’s operating profit, up from 15.9% in the year-ago period. Along with the retail business, the company’s consumer businesses accounted for 36% of total operating profit compared with 26% a year ago.
This is a result of RIL’s investment in many companies since 2018 to further its foothold in these tech spaces. These investments were made to Saavn and Grab in media and entertainment space, Embide and Nowfloats in edutech space. Similarly they also invested in Haptik and Vakt Holdings for AI, Fynd and C-Square in e-commerce, Reverie in Software as a Service and Netradyne in logistics.
“Comprehensive digitisation will be a vital component of the revitalisation of the Indian economy. It is our strong conviction that no one should be deprived of the tremendous new opportunities, including those for new employment and new businesses, embedded in India’s 360-degree digital transformation,” RIL said.
Simultaneously, the fund infusion will mark-up Jio Platforms’ balance-sheet at a crucial time. While the opportunity in the Indian retail is immense, RIL and Jio Platforms have significant investments to make, notably in customer acquisition and supply chain. Even though, analysts are saying that Reliance’s retail ventures will take considerable time to gain scale, this Silver Lake fund infusion will accelerate RIL’s diversification.
Silver Lake has around $40 billion in combined assets under management and committed capital with a singular focus on the world’s great tech and tech-enabled opportunities. Its investments have included Airbnb, Alibaba, Ant Financial, Alphabet’s Verily and Waymo units, Dell Technologies, Twitter and numerous other global technology leaders.