Tech Giant Facebook is all set to invest in Reliance Jio and Facebook by way of Foreign Direct Investment (FDI) in India. Many other companies like Silver Lake, KKR are also making heavy investment in Reliance Jio.
Facebook will invest Rs.43,574 in Reliance Jio, a telecom unit of Reliance Industries Ltd. (RIL), for a 9.99% stake in Reliance Equity. The investment makes Facebook the largest minority shareholder in Reliance Jio and values the platform at an enterprise value of Rs 4.62 lakh crore. It is the largest investment for a minority stake by a tech firm anywhere in the world. It is also the largest FDI ever in the technology sector in India and with this, the deal values Jio platforms among the top five listed companies in India by market capitalization.
RIL’s shares closed 10.3% higher at Rs 1,363.35 on the BSE Wednesday, having surged more than 12% in intraday trade. RIL said “This investment by Facebook values Jio Platforms at Rs 4.62 lakh crore pre-money enterprise value ($65.95 billion, assuming a conversion rate of Rs 70 to a US dollar).”
The transaction is subject to regulatory and other customary approvals, RIL said. Separately, Jio officials said the only approval needed for the deal was from the Competition Commission of India. The transaction will add extra security to this deal to make it more competant and flexibility to this deal.
It has also come into news that RIL and Facebook were exploring the possibility of creating a super-app like China’s WeChat to increase the venture digitalization.
In a blog post, Facebook CEO Mark Zuckerberg said the deal underscores the company’s commitment to India. “This is especially important right now, because small businesses are the core of every economy and they need our support,” Zuckerberg said. “India has more than 60 million small businesses and millions of people rely on them for jobs.
He said Facebook will play a role in getting the global economy moving again.
“With communities around the world in lockdown, many of these entrepreneurs need digital tools they can rely on to find and communicate with customers and grow their businesses,” he said. “We’re looking forward to getting started”.
The main focus of the deal is to come up with digital-based solutions for 60 million micro, small and medium businesses, 120 million farmers, 30 million small merchants and millions of small and medium enterprises in the informal sector, the companies said.
Facebook has good reason to focus on the Indian market, as it is banned from China, and the India digital sphere is growing rapidly. India, being a fast developing economy in the world, attracts lots of customers to make FDI in various Indian sectore. Recently, Billionaire Warren Buffet’s Berkshire Hathaway made an investment of $356 million in One97 communications – PayTM.
“In the very near future, JioMart (Jio’s small digital business initiative), Jio’s digital new commerce platform, and WhatsApp, will empower nearly 3 crore small Indian kirana shops to digitally transact with every customer in their neighbourhood,” Ambani said. “This means all of you can order and get faster delivery of day-to-day items, from nearby local shops.”
He added that the focus of the tie-up will be to create new ways for people and businesses to operate more effectively in the growing digital economy.
“For instance, by bringing together JioMart, Jio’s small business initiative, with the power of WhatsApp, we can enable people to connect with businesses, shop and ultimately purchase products in a seamless mobile experience,” Ambani said.
So, accordingly this will lead to more employment generation opportunities for youngsters and middle age population with significant decrease in cost of such products (JIOMart etc.) in this fast growing Digital Economy.
Subsequently, other companies have also made investments in Reliance Jio, KKR to invest 11,367 Crores, Private Equity Firm Silver Lake to invest Rs. 5655.75 Crores, Vista Equity to invest 11,367 crores for a 2.3% stake and according to the sources, General Atlantic is also going to invest 6598 Crores in Jio Platforms.
Besides the balance sheet de-leveraging, the timing of the deal of Jio with Facebook is significant for another reason: online platforms, selling essential goods, have suddenly witnessed a sudden upsurge in demand. For example, before the corona virus outbreak, just 1% of the Rs 80,000-crore grocery market in India was represented by online players. After the lockdown, online platforms started to account for 50% of the grocery demand in the country by some estimates before it corrected. “We’re one of the few companies that has got more than enough business but not enough resources due to this Covid19 Outbreak” said Hari Menon, CEO of India’s largest online grocer Bigbasket. Amazon, Flipkart and even Swiggy and zomato started delivering essential products only to various cities.
The partnership with Reliance could also help Facebook navigate its way to the regulatory environment in India, where it has been trying hard with the authorities, including for its major initiatives such as Whatsapp Pay, a new payment system.
The deal also marks Facebook’s entry among its potential investors in India’s technological space, joining the likes of SoftBank, Amazon and Google that have together poured in billions of dollars in various Indian tech startups and their own ventures over the years. Facebook had also invested around $20-25 million in social commerce platform Meesho in 2019, and participated in a $110 million funding for edu-tech company Unacademy earlier this year.
The deal with Reliance also gives Facebook access to the latter’s bouquet of digital apps. These include in-house apps such as Jio Money, Jio TV, etc. in addition to the young startups acquired by Reliance or its subsidiaries across categories such as logistics, E-Commerce and Artificial Intelligence. All here we can see is that Reliance has acquired a strong position in the market even during Lockdown and is likely to hit the market soon. Because of this cause, many other foreign companies will also be likely to invest in various Indian companies. Though it is hard times for all the countries because of this covid19 pandemic, with unemployment pushing 30 percent, the world’s fifth-largest economy needs a strong dose of fiscal and monetary intervention.