Facebook buys $5.7bn stake in India’s Reliance Jio
Facebook has acquired a $5.7bn stake in Reliance Jio, joining forces with the fast-growing Indian telecoms company as it seeks to deepen its foothold in the region.
The world’s largest social media company on Tuesday announced the purchase of almost 10 per cent of the heavily indebted Jio, whose cut-price mobile internet service has attracted 388m Indian users since its birth in 2016.
Facebook said the deal — its largest single investment in another company aside from its acquisitions — marked its “commitment to India” and meant it was now the largest minority shareholder in the Indian telecoms group, part of the business empire of Mukesh Ambani, the country’s richest man.
The move gives Jio, a subsidiary of Mr Ambani’s Reliance Industries conglomerate, a pre-money enterprise valuation of almost $66bn, Reliance said in a statement.
Facebook has been seeking to monetise the ballooning number of internet and smartphones users in India at a time when the pace of growth in its developed markets has slowed.
In a blog post, the social media group said the two companies would focus on a partnership between JioMart, Jio’s newly launched ecommerce platform, and WhatsApp, the Facebook messaging service that has 400m users in India. WhatsApp is also poised to roll out a payments service in the region, pending approval from the Indian government.
JioMart, which connects local shops to customers, could help Facebook and WhatsApp tap into India’s enormous but unorganised retail sector, where small neighbourhood stores often have greater sway with consumers than larger competitors.
Since launching Jio in 2016, Mr Ambani’s Reliance Industries has emerged as the only Indian group capable of competing with US tech companies in the fast-growing Indian market, expanding from mobile telecoms into everything from home broadband to ecommerce.
However, Reliance’s debt burden has ballooned as it has spent tens of billions of dollars to build out Jio. The Facebook deal will support its plans to eliminate its net debt by March 2021.
Reliance, whose core business is oil refining, has also been hit by the collapse in oil prices and demand. Its share price has fallen 16 per cent since late February.
The Indian conglomerate said Facebook’s move was “the largest investment for a minority stake by a technology company anywhere in the world and the largest foreign direct investment in the technology sector in India”.
But analysts questioned whether Facebook had other strategic reasons for taking what appears to be a passive stake in Jio.
“Small business advertising on Facebook is not going to get you all the way to justifying the capital investment. Presumably there’s some other motivation,” said Brian Wieser, global president of business intelligence at GroupM, citing “exposure to the wireless sector” as an example.
The tie-up with homegrown Jio could also help Facebook avoid some of the obstacles facing foreign investors, who have often struggled to navigate India’s regulatory landscape. Since investing in the country over a decade ago, UK telecoms company Vodafone has been tied up in disputes and has indicated it may quit the country.
Silicon Valley companies too have at times faced a frosty reception. India’s telecoms regulator blocked Facebook’s “Free Basics” app in 2016, and New Delhi has tried to compel WhatsApp to break its encryption policies in order to operate in the country. A proposed personal data protection bill currently making its way through parliament could add to the pressure on foreign tech giants.
Ajit Mohan, Facebook’s India director, denied that blunting regulatory issues was part of the intent. The deal is subject to regulatory approval.
“All of us at Reliance are . . . humbled by the opportunity to welcome Facebook as our long-term partner in continuing to grow and transform the digital ecosystem of India for the benefit of all Indians,” said Mr Ambani, Reliance Industries’ chairman and managing director.
The news confirms a Financial Times report last month that the parties were eyeing a deal but that talks had been held up by the coronavirus pandemic.