American investment company TPG Capital has recently bought 0.93% of Reliance Jio for Rs. 4546.80 crore. A Reliance statement stated, “With this investment, Jio Platforms has raised Rs 102,432.45 crore from leading global technology investors including Facebook, Silver Lake, Vista Equity Partners, General Atlantic, Mubadala, Abu Dhabi Investment Authority, and TPG since April 22, 2020.” Media reports state that Mukesh Ambani is not only preparing this war chest to get past all uncertainties that may come into his way but to pursue the possibility of other business opportunities. According to a report by Kotak Institutional Equities, this hefty amount will be used by Ambani not only to curtail Reliance Industries Limited’s (RIL) net debt but also to explore opportunities that augment his already diverse business.
Incidentally, media reports state that the deals with global investors will enable RIL to completely eliminate its net debt by the end of 2020-21. The deals with global investors will enable Reliance Industries to completely eliminate its net debt by the end of 2020-21. At the end of the March quarter, Reliance’s debt stood at Rs. 3,36,294 crore while its cash in hand was Rs. 1,75,259 crore. After adjusting cash, the net debt came to Rs. 1,61,035 crore. The anticipations came out to be true as recently RIL announced that it has become net debt-free well ahead of its March 2021 target.
Indian businesses were not going through the best of times combatting the challenges of demonetisation, GST, low GDP, lack of purchasing power among people and others. The lock down imposed by the Covid-19 pandemic further worsened the situation for Indian businesses. However, even in the lock down period, RIL has not failed to impress by attracting investments from various companies. In April, RIL grabbed an investment worth Rs. 47,574 crore from Facebook for a 9.99% equity stake in Jio Platforms. In a statement, the company stated that RIL has raised more than Rs. 168,818 crore in just 58 days through Rs. 115,693.95 crore collected from investors in Jio and another Rs. 53,124.20 crore from a rights issue. Along with stake sale to BP in the petro-retail JV, the total fundraising is in excess of Rs. 1.75 lakh crore.
Reacting to the foreign investments for Reliance Jio, Shaunak Roy, Assistant Professor, Department of Commerce and Management Studies, St. Xavier’s College (Autonomous), Kolkata, told BE, “It is heartening to note a seemingly perpetual array of investors queueing up to purchase shares in Reliance Jio platforms. Such investments, especially by tech- investors, such as Facebook, would help reposition Reliance Jio’s brand image from a telecommunications company to a holistic tech-major, encompassing service-portfolios such as eCommerce, news, entertainment, education, health, etc.” This strategy by Reliance can prove to be advantageous for India, at a time when global like Amazon, Walmart and even Alibaba are starting to make significant and heavy strategic investments in Indian firms.
However, one thing that probably requires more clarity is the valuation-related segregation pertaining to the Reliance Jio platforms. For instance, currently, there are excessive competitive pressures for asset acquisitions, thereby triggering higher valuations for Jio, approximately 42% higher than Bharti Airtel, although the latter is perceived widely as a telecom-major. So, the question that looms large is, which vertical of Reliance Jio is reflecting the value?
Roy points out, “This isn’t a major concern yet, as long as its debt-discrepancies with the parent company are sorted. Reliance Jio’s job is cut out: deliver the lofty assurances to stakeholders and generate significant revenues in the days ahead. For now, the company has embarked on a significant blitz scaling journey, even though it isn’t a start-up, and this news of lavishness of PE capital for the company shall be nothing but good for the Indian investment ecosystem in the days ahead.”
In an interview with PTI, Mukesh Aghi, President, US India Strategic and Partnership Forum (USISPF) said that the pandemic offered India the best opportunity to attract foreign investment and replace China as manufacturing hub. He also stated that the investment announced by Facebook in Reliance Jio in the middle of the coronavirus pandemic shows the attractiveness of Indian market on the digital commerce side. However, several experts feel that until there is investment in the manufacturing sector, the chances of revival of the economy is quite dull. However, with their net debt cleared away and their array of diversifications, it will be interesting to see how RIL explores the opportunities for revival of the economy in the foreseeable future
Ashwani Mahajan, National Co-Convener, Swadeshi Jagaran Manch in his statement for The Print has raised an important concern – whether the investments for Jio will boost India as an important Foreign Direct Investment (FDI) destination or if it will threaten the e-commerce ecosystem. He wrote, “With an edge on data, this partnership threatens the very concept of net neutrality and opens the door to even more deep anti-competition tactics like deep discounting.” Mahajan anticipates a possible monopoly in the way Indian public receives information through this deal. Reliance already has JioSaavn, and Viacom18 under its belt. Therefore, instead of lauding this as an FDI win, there is need to recognise that the e-commerce ecosystem can be that it upturned.
Now only time will tell whether the RIL’s deals will attract more global investors for Indian companies or if it is a step towards ensuring business monopoly.