The Game Changer
With both sides tight-lipped, the nuts and bolts of Jio-Facebook tie-up remain shrouded in mystery
With both sides tight-lipped, the nuts and bolts of JioFacebook tie-up remain shrouded in mystery
Months before Reliance Industries announced that Facebook would buy a 9.99 per cent stake in Jio Platforms — the holding company of its digital businesses — for ` 43,574- crore, both companies were at loggerheads. In January last year, at the 9th Vibrant Gujarat Summit, Mukesh Ambani, Chairman of Reliance Industries ( RIL), advocated protecting India’s data from global corporations. In September, Facebook’s Global Affairs VP, Nicholas Clegg, countered that asking India to allow free flow of data across borders.
Seven months later, Ambani has joined hands with Facebook’s Mark Zuckerberg to collaborate on the vast data both collect in their ventures. So, what could have prompted both billionaires to come together?
Analysts call it a “marriage of convenience” – where each partner brings something to the table that the other lacks. With both sides tight-lipped about the deal, the nuts and bolts of the tie-up are shrouded in mystery. Analysts believe barring the investment announcement, most details are still being worked upon.
Facebook’s investment could bring RIL’s debt down at a time when cash conservation has become critical for leveraged entities. As per Hong Kong-based CLSA, RIL’s consolidated net debt and other liabilities were ` 2.35 lakh crore in 2019/20, down marginally from ` 2.40 lakh crore in 2018/19. “Cash infusion from this deal and closure of ` 7,000 crore stake sale to BP in the oil marketing JV should mean cash infusion of over ` 50,000 crore and bring down net debt,” says a CLSA report. Even as the modalities of the deal are being thrashed out, the industry stays circumspect about how things will move forward from here on.
While announcing the partnership, RIL said its “focus will be India’s 60 million micro, small and medium busi
nesses, 120 million farmers, 30 million small merchants and millions of small and medium enterprises in the informal sector, in addition to empowering people seeking various digital services.” It’s unclear how far RIL has come in connecting these small merchants and businesses with its new commerce platform.
Last December, Jio Platforms reportedly did a soft launch of grocery platform JioMart in Navi Mumbai, Thane and Kalyan. Hence, it’s safe to assume RIL’s new commerce journey has just begun, and it will have to tread a long way before potential benefits can be realised.
Nevertheless, Ambani stunned the world by clinching the deal in the middle of the coronavirus outbreak. He not only pulled off the largest FDI in India’s tech sector, but also became Asia’s richest person.
Jio Platforms, the RIL subsidiary in which Facebook has invested, saw its enterprise value soar to ` 4.62 lakh crore. Last December, brokerage Axis Capital estimated that Jio’s enterprise value will touch ` 4.64 lakh crore in 2023/24. Jio Platforms is a larger entity that houses all digital ventures of RIL – the Jio suite of apps, digital investments (KAI- OS, Haptik) and big data, AI and IoT capabilities. Jio remains the crown jewel in the bouquet of those investments.
The deal is divided into two parts. First, Facebook is buying 9.99 per cent stake in Jio Platforms. A part of the proceeds (`15,000 crore) will be retained in the company and the rest (over ` 28,000 crore) will be used to redeem OCPS (optionally convertible preference shares) of RIL. A separate partnership has been signed between Facebook-owned WhatsApp, Reliance Retail and Jio Platforms to grow RIL’s new commerce business using WhatsApp.
This investment fits in with Ambani’s new commerce project launched two years ago at RIL’s 41st AGM. What exactly is new commerce? One of the biggest pieces of Reliance Retail’s new commerce project is JioMart, which plans to join hands with millions of kirana stores across India, and bring them on its platform. By integrating offline kiranas with WhatsApp, local retailers can have a wider reach and greater display on Jio’s platform.
“New commerce is going to be our e- commerce offering. We will enable kiranas to become full-fledged e- commerce companies. Customers would go to their WhatsApp and access JioMart where they can find the kiranas. The idea is to digitise the whole supply chain that’s informal right now,” says a RIL source.
In the long term, the plan is to cover more segments under new commerce. The expansion of JioMart vertical, (integrated) payments system of WhatsApp, credit facilities
and other services would enable RIL to challenge e- commerce players like Amazon and Flipkart. “This will help RIL create a strong rival to online e- commerce giants like Amazon and strengthen its leadership in Indian retail,” says an Axis Capital report.
The timing of the deal is great as RIL’s oil refining and petrochemicals revenues have taken a hit. The historic fall in crude prices has upended fundamentals of RIL’s oil and gas business. The mega- deal with Saudi Aramco last year also risks being called off after government reportedly asked a court to restrain the $15-billion deal. “While the Saudi Aramco due diligence is ongoing, clearly with Covid-19 disruptions, the transaction would likely get pushed out.
The key investor concern is whether the collapse in crude would lead to deal cancellation,” says a J.P. Morgan report.
There are two clear upsides for Facebook.
First, it can monetise Jio’s subscriber data. Though there are rising concerns over users’ data privacy and squeezing of online advertising, India is yet to finalise the personal data protection law. Without such a law, Facebook can reportedly leverage Jio users’ data without any regulatory restrictions.
“Facebook is largely dependent on ad revenues. Monetising WhatsApp has been tough for them. With this tieup, they would have greater access to the digital life of an additional 388 million users. The privacy concern stems from there. Facebook’s history has been marred with controversies and instances of how data was used by marketers for political campaigning. With this, they would further monopolise the market to attract more advertisers. Everything boils down to ads,” says Neil Shah, VP ( Research) at Counterpoint Research.
With RIL on its side, Facebook can gain a deeper foothold in India. India is home to some of Facebook’s most thriving communities on WhatsApp, Facebook and Instagram. In the fourth quarter of 2019, the family of Facebook apps saw 2.89 billion monthly users globally, up 9 per cent over the same period last year. As one of the largest consumer economies outside the US, India has been at the forefront of Facebook’s target markets. Since China is closed for foreign entities, penetrating deeper into the Indian market becomes more important. RIL’s understanding of the domestic market, particularly the regulatory side, could bring Facebook closer to Indians.
Facebook has a chequered history in India. In 2016, it suffered a big setback over the backlash from net-neutrality activists over its Free Basics programme. WhatsApp also struggled to make headway in the Indian payments market. Despite betalaunching payments service WhatsApp Pay in February 2018, it got approval from NPCI ( National Payments Corporation of India) for roll out just two months ago. Meanwhile, others like Google Pay, Amazon Pay, and PhonePe have taken a lead. With the integration of WhatsApp Pay and JioMart on a large scale, Facebook could bridge some of that gap.
An RIL-Facebook partnership was in the works for a while, but the coronavirus havoc accelerated its closure. How? With the coronavirus onset, hyperlocal retail has become extremely popular. “The key expectation from investors is if WhatsApp becomes the new all-in Super App and allows for Jio and [Reliance] Retail to foray into various commerce initiatives leveraging WhatsApp as the Super App,” says the JP Morgan report.