Mukesh Ambani, chairman of Reliance Industries.
Amid the chaos of the coronavirus pandemic and the oil price collapse, Indian billionaire Mukesh Ambani, the richest person in Asia with a fortune of $52.9 billion, is on a deal-making spree to reduce the debt of his Reliance Industries.
Less than a fortnight after agreeing to sell close to 10% in Jio Platforms, the telecom and digital unit of his oil and gas giant Reliance Industries, for $5.7 billion to Facebook, Ambani announced on Monday a deal with another Menlo Park, California-based company: private equity firm Silver Lake will be acquiring just over 1% in Jio for $748 million. This latest transaction values the telecom unit at $65 billion, a 12.5% premium to the Facebook deal.
In a statement, Egon Durban, a founding principal and co-CEO of Silver Lake, who is a billionaire himself with a net worth of $1.2 billion, explained the rationale behind the investment: “They have brought extraordinary engineering capabilities to bear on bringing the power of low-cost digital services to a mass consumer and small businesses population. The market potential they are addressing is enormous.”
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With $40 billion in assets under management, Silver Lake is known for its successful tech bets on companies such as Alibaba and Dell Technologies. Apart from Durban, the private equity giant’s chairman Kenneth Hao, vice chairman Mike Bingle and co-CEO Greg Mondre are also billionaires.
With 388 million subscribers, Jio has become Reliance’s growth engine, helping, along with the company’s fast-growing retail arm, to offset the decline in oil and petrochemicals. The company’s overall annual revenue increased by 5% to $87.4 billion and it reported a net profit of $5.3 billion in the fiscal year ended March 2020.
Arun Kejriwal, founder of Kejriwal Research & Investment Services in Mumbai, says the Silver Lake investment could be followed by others. “With each subsequent deal, Reliance will seek to establish a new valuation benchmark for Jio,” he says.
Ajay Bodke, CEO and chief portfolio manager of Prabhudas Lilladher, a Mumbai-based stockbroking firm, says: “Jio Platform would continue to be the first port of call for investors keen to bet on India’s 1.3 billion-strong population that is rapidly embracing digital services, including e-commerce.”
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The Jio deals will go some way in reducing Reliance’s consolidated debt which stands at $44.4 billion. The company is also raising $7 billion in a rights issue, its first in three decades, which has been priced at a discount to the current stock price. Last August, Reliance had announced a proposed $15 billion investment by Saudi Aramco in its oil and petrochemicals business, a transaction that looks shaky in the current environment.
But Ambani, who has declared that he will forego his salary during the COVID-19 pandemic, is committed to keeping his promise of reducing Reliance’s net debt to zero by 2021. Reliance said last week that due diligence for the deal with Saudia Aramco is “on track.”