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What is Jio Platforms, and why does everyone want to invest in it?

It all started with a rumour that Facebook wanted to buy a 10% stake in Jio Platforms, the holding company of Jio, now India’s largest telecom network. In late March, Business Insider had reported:

According to Financial Times, Facebook is looking at buying a multibillion-dollar stake in Reliance Jio which has been valued at USD 60 billion by analysts at Bernstein.Both Reliance Jio and Facebook did not comment on the report.

The international financial daily said that the lockdown may have an impact on the timing of the deal.

Reliance Industries (RIL) in October had announced to set up a new subsidiary to bring all its digital initiatives and apps under a single entity, and infuse Rs 1.08 lakh crore equity into this new unit.

(“Crore” is an Indian unit that translates to “100 million”. ₹1.08 lakh crore is equivalent to ₹1.08 trillion, which is approximately $14 billion)

If the lockdown had any impact on the deal, it was only in terms of introducing a small delay. In late April, Facebook’s $5.7 billion investment for a 9.99% stake in Jio got confirmed.

And that was only the beginning of the deal flow (yes, Jio is bending a lot of financial metaphors for sure).

Days after the Facebook deal was announced came the announcement that Silver Lake Partners was investing $747 Million in Jio. Then came Vista Equity Partners, and General Atlantic, and KKR, and Mubadala (Dubai’s investment arm). Silver Lake then (nearly) doubled down. Not to be outdone by Mubadala, Abu Dhabi Investment Authority put in money as well. And over the weekend, TPG and L Catterton also confirmed deals to invest in Jio Platforms. NDTV nicely summarises all these deals.

This is what Jio Platforms’s cap table now looks like:

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(The total investment from these investores comes up to ₹1.04 trillion. Note that the Business Insider article in March had said that Jio wanted to raise ₹1.08 trillion. So despite the pandemic they haven’t done badly at all. All these investments put together value Jio Platforms at approximately $62 billion (approximate since not all investments have been at the same valuation) )

So what does this make Jio Platforms? A platform to bring together global private equity firms sounds right?

So why is Jio Platforms raising so much money now? Moody’s suspects that it is to help its parent Reliance Industries to pare its debt.

In its Annual General Meeting (of shareholders) in August 2019, Reliance Chairman Mukesh Ambani had announced an ambitious plan of bringing down the company’s debt to zero by March 2021. Now, it appears Ambani is on track to completely deleverage his firm by December 2020 itself, going by a report in the Economic Times.

The company expects to complete a capital raising programme totalling Rs 1.04 lakh crore by June, Venkatachari said. 

This includes the rights offering of one share for every 15 shares held at Rs 1,257, a 14 per cent discount to the closing price for April 30. Also included is the Rs 43,574 crore coming from the Facebook buying stake in Jio Platforms and Rs 7,000 crore from sale of 49 per cent stake in fuel retailing venture to UK's BP plc. 

"In addition, Saudi Aramco due diligence is progressing well," he said without saying when the deal was expected to be closed. 

Reliance values its oil-to-chemical business, which includes its twin refineries at Jamnagar in Gujarat, petrochemical assets, and 51 per cent stake in auto fuel and aviation fuel retailing venture, at USD 75 billion. Saudi Aramco is in talks to buy a 20 per cent stake in this venture.  

And

Of this debt, Rs 2,62,000 crore is on RIL books and Rs 23,000 crore is with Jio. 

At the concall, company officials said Jio Platforms will retain Rs 14,976 crore out of Rs 43,574 crore received from Facebook and use the remaining Rs 28,598 crore to settle the debt. 

When the pandemic and the associated lockdown hit, it was assumed that well-capitalised companies might use this opportunity to buy assets that are going to be undervalued thanks to the lockdown. Instead, India’s richest person is on a roll selling his assets, and at attractive valuations at that!

Also Read: This profile by Bloomberg about Manoj Modi, Ambani’s confidante who has been responsible for negotiating most of the deals to sell equity in Jio Platforms.

“I don’t really negotiate," Modi said. “I don’t understand strategy," he went on. “In fact, people internally know that I don’t even have a vision." He described his role, saying, “I deal with our internal people, coaching them, mentoring them and guiding them on how something can be done."

But then came a hint of his thinking: “Our principle at Reliance is very simple: Unless everyone makes money while working with us, you cannot have a sustainable business.