Silver Lake follows Facebook, to invest Rs 5,656 cr in Ambani's Jio Platforms

Following the footsteps of Facebook, Silver Lake Partners - the world's largest tech investor - on Monday agreed to invest Rs 5,655.75 crore to buy a 1.15 per cent stake in billionaire Mukesh Ambani's digital unit that houses India's youngest but biggest telecom firm. The investment in Jio Platforms is at a 12.5 per cent premium to the Facebook's USD 5.7 billion (Rs 43,574 crore) investment for a 9.99 per cent stake in the firm.

The deal, as well as some other strategic and financial investments in works, will help Ambani cut debt at its oil-to-telecom conglomerate, Reliance Industries Ltd (RIL). "Silver Lake will invest Rs 5,655.75 crore into Jio Platforms," Reliance said in a statement. "This investment values Jio Platforms at an equity value of Rs 4.90 lakh crore and an enterprise value of Rs 5.15 lakh crore and represents a 12.5 per cent premium to the equity valuation of the Facebook investment announced on April 22, 2020."

Facebook had bought a 9.99 per cent stake in Jio Platforms for USD 5.7 billion (Rs 43,574 crore) at an enterprise value of Rs 4.62 lakh crore. Strategic and financial investors are to form 20 per cent of Jio Platforms, half of this has already been picked by Facebook. Silver Lake is one of the investors for the remaining and more such investments are likely.

Ambani, 63, chairman and managing director of RIL, had in August last year set a target of March 2021, to make his conglomerate net debt-free. But thanks to the Facebook deal, a Rs 53,125 crore rights issue, Silver Lake investment, and more stake sale to companies such as Saudi Aramco, the target is likely to be achieved by December. "Jio Platforms, a wholly-owned subsidiary of RIL, is a next-generation technology company building a digital society for India by bringing together Jio's leading digital apps, digital ecosystems, and India's #1 high-speed connectivity platform under one umbrella," the statement said.

"Reliance Jio Infocomm Ltd, which provides connectivity platform to over 388 million subscribers, will continue to be a wholly-owned subsidiary of Jio Platforms," it added. With around USD 40 billion in combined assets under management and committed capital, Silver Lake is the global leader in large-scale technology investing. Its investments include Airbnb, Alibaba, Ant Financial, Alphabet's Verily and Waymo units, Dell Technologies, Twitter and numerous other global technology leaders.

At the end of March quarter, Reliance had an outstanding debt of Rs 3,36,294 crore and cash in hand of Rs 1,75,259 crore. After adjusting cash, the net debt came to Rs 1,61,035 crore. Of the outstanding debt, Rs 2,62,000 crore is on RIL books and Rs 23,000 crore is with Jio. As part of debt reduction plans, the company expects to complete a capital raising programme totalling Rs 1.04 lakh crore by June. 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 from the Facebook-Jio Platforms deal and Rs 7,000 crore from the sale of 49 per cent stake in fuel retailing venture to UK's BP plc. Commenting on the deal, Vikas Halan, Senior Vice President, Corporate Finance, Moody's Investors Service, said "Silver Lake's investment in Jio Platforms further illustrates RIL ability and willingness to monetize its digital services business and reinforces the company's commitment to achieve a zero net debt position by March 31, 2021."

Investment by Silver Lake is priced at a premium to recently announced investment by Facebook Inc and establishes another pricing benchmark for Jio Platforms, he said adding the deal was credit positive as it enhances RIL's already strong financial flexibility. Including the recently announced rights issue and investments by Silver Lake and Facebook Inc, RIL has announced initiatives that could reduce net debt by about USD 13.6 billion from reported net debt of USD 21.4 billion as on March 31, 2020, he added.

"In the wake of the severe economic disruptions caused by the COVID-19 pandemic, globally and especially within India, this partnership with one of the most renowned tech-investors globally, Silver Lake, has special significance," Reliance statement said. This is the first sizable investment by Silver Lake in India.

Ambani said: "I am delighted to welcome Silver Lake as a valued partner in continuing to grow and transform the Indian digital ecosystem for the benefit of all Indians. "Silver Lake has an outstanding record of being a valuable partner for leading technology companies globally. Silver Lake is 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."

Commenting on the investment, Egon Durban, Silver Lake Co-CEO and Managing Partner, said, "Jio Platforms is one of the world's most remarkable companies, led by an incredibly strong and entrepreneurial management team who are driving and actualizing a courageous vision. "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, and we are honoured and pleased to have been invited to partner with Mukesh Ambani and the team at Reliance and Jio to help further the Jio mission." The transaction is subject to regulatory and other customary approvals. Morgan Stanley acted as financial advisor to Reliance Industries and AZB & Partners and Davis Polk & Wardwell acted as legal counsels.