Facebook picks up 9.99 pc stake in Jio Platforms for Rs 43,574 cr

New Delhi, Apr 22 () Facebook on Wednesday announced an investment of USD 5.7 billion to buy 9.99 per cent stake in the firm that houses Reliance Jio -- a deal that will help billionaire Mukesh Ambani create an e-commerce giant that could rival Amazon and Walmart by linking local kirana stores and consumers over the highly popular chat service WhatsApp.

The largest foreign direct investment (FDI) in the technology sector in India will give the US social-networking giant a broader foothold in its biggest global market.

"Today we are announcing a USD 5.7 billion, or Rs 43,574 crore, investment in Jio Platforms, part of Reliance Industries Ltd (RIL), making Facebook its largest minority shareholder," the company said in a statement.

Reliance Industries (RIL) in a separate statement said the investment by Facebook values Jio Platforms at Rs 4.62 lakh crore pre-money enterprise value (USD 65.95 billion).

Facebook will be issued fresh equity shares and will get a board position on Jio Platforms where Ambani's twin children, Isha and Akash, are directors.

Jio Platforms, which was created in October last year to house all digital initiatives of Reliance, will retain Rs 15,000 crore and use the remaining amount to pare some of its about Rs 40,000 crore debt.

Transaction advisors to prepare term sheet for the deal were engaged sometime in November last year, implying commercial negotiations between the two groups would have started in July or August.

Ambani had in August last year told RIL shareholders about plans to sell stake in some of the businesses with the goal of making the firm free of net debt by 2021.

The deal was originally targeted for March 31, but the outbreak of COVID-19 pushed the negotiations into a virtual zone.

The deal will bring together JioMart, the e-commerce venture of Ambani, and Facebook's WhatsApp platform to connect consumers with neighbourhood kirana stores, he said.

WhatsApp has over 400 million users in India while Jio has 388 million-plus phone subscribers. Facebook has about 250 million users in India.

This is Facebook's biggest stake buy since its 2014 acquisition of WhatsApp. The US giant has typically been buying into media and online properties till now and the investment in Jio Platforms underscores the potential it sees in a country that is rapidly embracing online payment and e-commerce as more people get smartphones.

The deal would require the approval of the Competition Commission of India (CCI). No government nod is needed as the FDI is within the permissible limits.

"In the very near future, JioMart and WhatsApp will empower nearly 3 crore small Indian Kirana shops to digitally transact with every customer in their neighbourhood," Ambani, 63, said in a video message after the deal announcement.

"This means all of you can order and get faster delivery of day-to-day items, from nearby local shops. At the same time, small kiranas can grow their businesses and create new employment opportunities using digital technologies," he said.

RIL spent almost USD 50 billion -- mostly borrowed money, on Jio, whose entry in 2016 with free calls and cheap data pushed some rivals to exit or merge to stay afloat.

At the end of the December quarter, RIL had an outstanding debt of Rs 306,851 crore. It also had cash in hand of Rs 153,719 crore, bringing the net debt position to Rs 153,132 crore.

Facebook said the investment "underscores our commitment to India and our excitement for the dramatic transformation that Jio has spurred in the country".

Together with WhatsApp and Instagram, Facebook overall is estimated to have more users in India than any other single country, and the numbers are expected to grow.

The number of internet users in India is projected to rise to about 850 million in 2022, according to consultancy PwC, up from 450 million in 2017. RIL has been seeking strategic partnerships across its businesses while targeting to deleverage its balance sheet.

It has been talking to Saudi Aramco for sale of a 20 per cent stake in its oil-to-chemical business for an asking of USD 15 billion. RIL has sold stake in its retail fuel venture to BP Plc for Rs 7,000 crore.

Both Facebook and Jio said the deal is non-exclusive, which essentially means that the US firm is free to partner with other Indian or foreign company as well.

The deal would give Facebook deeper access to India, the second-largest internet market after China.

Facebook is looking to launch a payment offering. Having a local partner could help it in navigating various regulatory issues, including those related to privacy and local storage.

Also, having a good telecom partner could help Facebook improve its reach to masses.

From RIL's perspective, it could leverage on Facebook's technology expertise and talent pool as well as help in its ambitions to make Jio a digital company. RIL said that concurrent with the investment, Jio Platforms, Reliance Retail Ltd and WhatsApp have also entered into a commercial partnership agreement.

This is to further accelerate Reliance Retail's new commerce business on the JioMart platform using WhatsApp and to support small businesses on WhatsApp.

The transaction, RIL said, is subject to regulatory and other customary approvals.

Morgan Stanley as a financial advisor and AZB & Partners and Davis Polk & Wardwell as counsels advised RIL on the transaction. Shardul Amarchand Mangaldas were legal advisors for Facebook. PRS MBI ANZ SHW ABMABM