Silver Lake checks into Jio Platforms, snaps up 1.15% for over Rs 5,600 cr

While the deal is smaller than the one with Facebook for 9.99 per cent stake, it comes at a 12.5 per cent premium
Reliance Jio Platforms (Jio Platforms), a subsidiary of Reliance Industries (RIL), is selling 1.15 per cent stake to private equity (PE) firm Silver Lake for Rs 5,655.75 crore.

The investment — the second in a fortnight - highlights its focus on new commerce business and will help it pare debt.

While the deal is smaller than the one with Facebook for 9.99 per cent stake, it comes at a 12.5 per cent premium.

The deal values Jio Platforms at Rs 4.90 trillion on equity basis and Rs 5.15 trillion on enterprise value basis, the company announced on Monday. The company had indicated post its March quarter results last week that it had received strong interest from strategic and financial investors and was in good shape to announce a similar sized (Facebook) investment over the coming months.

The investment in Jio Platforms is Silver Lake's second investment in India.

In 2013, the US-based technology-focused PE made a strategic investment in Eka Software Solutions, which provides commodity management solutions.  The PE investor has $40 billion in combined assets under management and investments in Airbnb, Expedia, and Twitter.

Silver Lake, along with other entities, purchased majority stake in Skype in 2009. It exited the company two years later.

Analysts say the fresh investments and tech partnerships will help RIL ramp up its focus on consumer business and trim debt.
Moody’s believes Silver Lake's investment in Jio is credit positive, as it enhances RIL's strong financial flexibility.

Vikas Halan, senior vice-president, corporate finance, Moody's Investor Service, says, “Including the recently announced rights issue ($7 billion) and investments by Silver Lake and Facebook, RIL has announced initiatives that could reduce net debt by about $13.6 billion from the reported net debt of $21.4 billion as on March 31."  The D-Street believes RIL is moving towards being a digital enterprise rather than an energy company.

Geojit’s Chief Investment Strategist V K Vijayakumar says RIL will be valued as a tech firm and should attract investors as it starts to move towards being a zero debt company.

Analysts at J P Morgan believe that these investments will help offset the weakness in its legacy businesses, release pressure on the capital front if capex increases and support its stock price. “RIL’s organic free cash flow (FCF) generation for FY21 looks as though it will be severely impacted and if reported capex continues in the Rs 60,000 to Rs 80,000 crore range, it would be FCF negative in FY21. To that extent, strategic investments/stake sales and news flow on these should support the stock price,” they add.
The other trigger for the stock price is the uptick in average revenue per user in the coming quarters. Reliance Jio had raised tariffs in December and given the long term plans the hikes have not fully reflected in the March quarter. Gains on that front coupled with incremental flow from fibre network and monetisation of assets would be key going ahead. The fund raising and cross selling opportunities should help it to increase its revenues from retail and digital segments. Any gains on the subscriber front given the weak operating metrics of competitors should also help improve market share and operating profit of Reliance Jio. According to Sanchit Vir Gogia, CEO of Greyhound Research the deal will ensure the ability of Jio to keep prices low for its services - and this means additional pressure for Bharti Airtel.

 Analysts at JPMorgan, too, believe RIL pivoting towards a consumer-technology company will improve its valuation.  “Core energy business could be staring at a multi-year slump, but repositioning as a consumer/technology company should continue to support stock price," say analysts at JPMorgan.

Given the capital expenditure in 2020-21 as well as its debt reduction plan, more investments in Jio Platforms are expected to aid its stock price.

Commenting on the deal, Egon Durban, Silver Lake co-chief executive officerand managing partner, says, “Jio Platforms is one of the world’s most remarkable companies, led by an incredibly strong and entrepreneurial management team who are driving and actualising a courageous vision."

RIL’s Chairman Mukesh Ambani highlighted Silver Lake as a valuable partner for leading technology companies globally and one of the most respected voices in technology and finance.  “We are excited to leverage insights from their global technology relationships for the Indian digital society’s transformation," he added.

While the deal is a positive for RIL, given the bearish sentiment, the stock fell 2.16 per cent to close at Rs 1,435.40 on the BSE on Monday.


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