Facebook buys 9.99% stake in Reliance Jio for $5.7 billion
Reliance Jio has seen astronomical growth ever since it entered the Indian telecom sector back in September 2016. The company’s success has allowed it to diversify into various other verticals, like home broadband and e-commerce, where it has opted for the same strategy of offering services at a price point that undercuts the competition by a significant margin. Jio’s rise in popularity caught the attention of Facebook and Google, both of whom were eyeing stakes within the Indian company. One of these deals has come to fruition, as Facebook and Reliance have now announced that Facebook has bought a 9.99% stake in Reliance Jio for $5.7 billion, or ₹43,574 crore.
Reliance Industries Limited (“Reliance Industries”), Jio Platforms Limited (“Jio Platforms”) and Facebook, Inc. (“Facebook”) today announced the signing of binding agreements for an investment of ₹ 43,574 crore by Facebook into Jio Platforms. This investment by Facebook values Jio Platforms at ₹ 4.62 lakh crore pre-money enterprise value ($65.95 billion, assuming a conversion rate of ₹ 70 to a US Dollar). Facebook’s investment will translate into a 9.99% equity stake in Jio Platforms on a fully diluted basis.
This binding agreement for investment will make Facebook the largest minority shareholder in Reliance Jio. Prior to this deal, Jio was a wholly-owned subsidiary of Reliance Industries Limited (RIL), i.e. the entire 100% of shares of Jio were held by RIL. But through this deal, RIL will hold 90.01% of Jio shares, while the remaining 9.99% will be held by Facebook. The deal is a part of RIL’s plan to reduce its net debt to zero by 2021. To note, the amount that Facebook has paid for 10% of shares of Jio is more than what Facebook paid for Oculus ($2 billion) and Instagram ($1 billion), combined.
Why is this deal significant?
This deal between RIL and Facebook is a coming-together of two corporate giants, both of whom command significant market shares in their varied product categories. WhatsApp, owned by Facebook, boasted of over 400 million users in India as of July 2019, and the number has only grown since then for the messaging service, while more than 270 million people use Facebook as a social network in India as of February 2020. Reliance Jio, on the other hand, has 370 million customers and is the largest Indian telecom operator with a 32% market share, as of December 2019.
Facebook’s press release mentions that the focus of the collaboration with Jio will be “creating new ways for people and businesses to operate more effectively in the growing digital economy“. An example provided for this vision is by bringing together JioMart, Jio’s small business initiative, with WhatsApp. Such a product collaboration will enable people to connect with businesses, shop, and hence, make it easy to purchase products in a seamless mobile experience.
There is further potential because of this deal. Facebook had attempted to break into India’s internet market with programs like Free Basics but hit snags on the grounds of net neutrality. With Jio on board, they have an in-road to the vast potential of the Indian market. In the same vein, Jio wishes to challenge the likes of Amazon and Flipkart in e-commerce with JioMart, and partnering with WhatsApp for its messaging platform as well as payment platform will be a tremendous growth driver.