Reliance Jio connects with Facebook for $5.7-billion equity deal

Investment values Jio Platforms at Rs 4.36 trn; US giant gets 9.99% stake, board seat; collaboration is non-exclusive.

Facebook and Reliance Jio hit the headlines early Wednesday morning, in a break from the daily lockdown news. Mark Zuckerberg announced in a Facebook post that the technology giant will acquire a 9.99 per cent stake in Jio Platforms Ltd (JPL) through a fresh issue of shares worth Rs 43,574 crore.

The deal values JPL—the holding company of Reliance Jio — at an enterprise value Rs 4.62 trillion.

JPL’s equity value works out to Rs 4.36 trillion after Facebook’s investment, making it the fifth most valuable company in the country, behind its parent Reliance Industries (RIL), Tata Consultancy Services, Hindustan Unilever, and HDFC Bank.

Considering the market value of RIL and JPL, the Street is valuing RIL’s remaining but core businesses of refining and petrochemicals and others such as retail at a lesser number of Rs 4.28 trillion. This makes JPL more valuable than the rest of RIL.

JPL, a fully-owned subsidiary of Reliance Industries Ltd, houses many digital platforms like Jio Saavn and Radisys, besides the biggest disruptor in the Indian telecom scene, Jio.

As part of the deal, Facebook will get a board seat in JPL and an observer seat without voting powers. At a concall, a couple of hours after the news broke, Facebook India CEO Ajit Mohan said, “the very fact that we are announcing the deal during Covid-19 is a reflection of our commitment to invest in the country.’’

However, both sides made it clear that they will continue to compete in many areas where they have their own digital products. For instance, while Jio Pay is already operational, Facebook is awaiting permission for its digital payment platform. Also, Reliance has Jio Chat, which competes with WhatsApp directly.

“We will collaborate, not integrate. And in some areas, we will also compete as we have our own product lines. The deal is also not exclusive,” said Anshuman Thakur, head of strategy at Reliance Jio. He also pointed out that Jio or JPL could go public, but only in the medium term, in about three to four years.

Facebook-Jio deal may see more foreign e-commerce firms flock to India

WhatsApp's integration into Jio's e-com platform holds the key: Experts

Some recent regulatory developments may have precipitated the Facebook-Jio deal. Going forward, this may increasingly prompt foreign e-commerce operators to consider setting up base in India, say legal and tax experts.

Pressure from the recently-expanded scope of Equalisation Levy that covers non-resident e-commerce platforms, the Reserve Bank of India’s (RBI’s) mandate that all data related to payments should be stored only in Indian systems, besides the rigours of an imminent Data Protection Law have played their part in shaping the Facebook-Jio deal, noted Tarun Jain, partner, BMR Legal.

The deal may not throw up any major tax issues, other than tax complexities associated with e-commerce business, said Abhishek Rastogi, partner at Khaitan & Co. The expanded scope of Equalisation Levy, as per the Finance Act 2020, is unlikely to influence the deal since most Jio platforms are likely to qualify as Indian e-commerce operator.

ALSO READ: Jio Platforms now more valuable than rest of RIL businesses put together

“It will, however, be interesting to watch the manner in which WhatsApp is integrated with these platforms and facilitates online transactions,” said Lokesh Shah, partner, L&L Partners.

Given the wide scope of Equalisation Levy, which also includes a facilitator such as WhatsApp service, the applicability will need to be examined based on the actual role of WhatsApp/ Facebook, Shah added.

Experts, however, point out that becoming an Indian tax resident could turn out to be a double-edged sword for foreign e-commerce players as it would expose the global income of such operators to tax in India.

India will become premier digital society: Mukesh Ambani at CEO Summit

He said the big change driving this transformation is the deepening of mobile networks which are working at a much faster pace than before.

Reliance Industries Chairman Mukesh Ambani on Monday said India is at the cusp of becoming a premier digital society, and will be among the top three economies of the world.

In conversation Microsoft Chief Executive Satya Nadella at the Future Decoded CEO Summit here, he said the big change driving this transformation is the deepening of mobile networks which are working at a much faster pace than before.

"It all kickstarted in 2014 when PM gave us the vision of Digital India... 380 million people have migrated to Jio's 4g technology," he said.

Pre-Jio, the data speed was 256 kbps; and post-Jio, it is 21 mbps, he pointed out.

Referring to US President Donald Trump's visit to the country, Ambani said India is much different than what it was during the visits of his predecessors Jimmy Carter, Bill Clinton or Barack Obama, and pointed out that mobile connectivity was a key change.

I have no doubt in my mind that we will be among the top three economies in the world, Ambani said, adding that the only debate which can exist is whether it happens in five or in ten years.

We in India have the opportunity to become the premier digital society, he stated.

"The next generation will see a very different India than what you (Nadella) and I have grown up in," he said.

Reliance Industries puts off gas bid for the second time to November 15

Sources in the company said bidders want more time to adapt to the new bidding system. Some added RIL may be facing lack of interest from potential bidders.

Business Standard : Mukesh Ambani-promoted Reliance Industries (RIL) on Wednesday postponed bidding for gas it plans to produce from its R-cluster field in the Krishna-Godavari (KG) basin, said sources. This is the second time RIL has changed the bidding date; the new date is now November 15.

Sources in the company said bidders want more time to adapt to the new bidding system. Some added RIL may be facing lack of interest from potential bidders.

“There is a lack of interest from bidders; they are not keen, given the current set of terms and conditions for the bidding,” said a source.

An RIL spokesperson said, “We have got a very good response from customers. The date has been postponed to accommodate request from customers for additional time to complete their internal processes and preparing bid-related documentation.”

Sources in the company said, “Bidders have requested for more time. They need to be more conversant with the system.”

RIL, along with UK partner BP, will be selling 5 million standard cubic metres a day from its R-cluster field in the KG basin through an e-auction mechanism. The original date for bidding was set at October 11, which was then moved to November 6. In its investor presentation for the September 2019-ended quarter, RIL said work on the R-cluster is on track for first gas in mid-2020.

In September, Business Standard reported the discovered price through e-auction, will be capped by a ceiling set by the government every six months for gas produced from difficult fields. The base price would be 9 per cent of the average Brent price for three months preceding the delivery date.

CRISIL Risk & Infrastructure Solutions is the appointed manager for the auction, to be conducted on the platform of ProcureTiger, a brand of Gujarat-based e-Procurement Technologies.

Through its investment in the R-cluster series, RIL is attempting a second try at India’s hydrocarbon exploration and production sector. With two of its clusters, R-series and Satellite series, likely to start production in the next two years, the company looks to turn around production from this business. Any significant delay in finding buyers for the production from these assets may further hurt the company’s E&P business. For the September 2019-ended quarter, RIL’s E&P segment reported earnings before interest and tax loss of Rs 306 crore.

RIL topples IOC to become the biggest Indian company in revenue terms

RIL was also the most profitable company in the country with a net profit of more than double that of IOC in FY2019.

Business Standard : Richest Indian Mukesh Ambani's oil-to-telecom conglomerate Reliance Industries has toppled state-owned Indian Oil Corp (IOC) to become the country's biggest company by revenue.

Reliance in the 2018-19 fiscal year that ended March 31, reported a turnover of Rs 6.23 trillion. In comparison, IOC posted a turnover of Rs 6.17 trillion for the fiscal, according to regulatory filings by the two companies.

It was also the most profitable company in the country with a net profit of more than double that of IOC in FY2019.

Reliance Industries, which was about half the size of IOC till about a decade back but its bet on burgeoning consumer base and foray into new businesses such as telecom, retail, and digital services vastly expanded its business, clocked a net profit of Rs 39,588 crore in FY19. IOC, on the other hand, ended the year with a net profit of Rs 17.274 crore.

IOC till last year was the most profitable PSU but may have lost this position to Oil and Natural Gas Corp (ONGC) in 2018-19. ONGC is yet to declare its FY19 earnings but it had clocked a net profit of Rs 22,671 crore in the first nine months of the fiscal year.

Net profit of IOC, which depends on oil refining, petrochemicals and gas business for its revenue, had in 2018-19 declined by 23.6 per cent over Rs 22,189.45 crore net profit it had earned in 2017-18.

Reliance, on the other hand, posted a 13 per cent rise in profits over Rs 34,988 crore recorded in 2017-18.

ONGC had a net profit of Rs 19,945.26 crore in 2017-18 fiscal, lagging behind IOC.

With this milestone, Reliance has achieved the numero uno position in terms of all three parameters revenue, profit, and market capitalisation.

With strong refining margin and robust retail business, Reliance clocked a 44 per cent in revenue in FY19 over the previous year and posted a compounded annual growth rate of over 14 per cent between FY10 and FY19. In contrast, IOC turnover rose 20 per cent in FY19 and 6.3 per cent during FY10 and FY19.

At Tuesday's trading price of Rs 1,345, Reliance boasts of a market capitalisation of Rs 8.52 lakh crore.

Interestingly, Reliance which boasts of the highest cash reserves of Rs 1.33 lakh crore on the book, also has the highest gross debt of Rs 2.87 lakh crore at the end of March 2019.

In contrast, IOC had short and long-term loans totaling Rs 92,700 crore.