Bangalore: Facebook will spend $5.7 billion (Rs 43,574 crore) for acquiring close to 10% (9.99%) of Reliance Industries’s digital business. The social media firm is looking to leverage ‘WhatsApp messenger’ to offer digital payment services to small grocers in India. So it has decided to invest in Reliance Industries.
Deal will help Realiance Industries
The deal will help Reliance cut debt that has piled up in its push to secure top spot for its ‘Jio Infocomm’ telco. It will also boost its new online grocery marketplace ‘JioMart’.
Competitive grocery market
India’s online grocery market is lucrative but competitive. Amazon.com’s ‘Pantry’ is jostling for market share with Walmart’s ‘Flipkart’ and ‘BigBasket’, backed by China’s ‘Alibaba’.
But a lot of untapped value lies in India’s kirana stores, or small grocers. It is the lifeblood of the country’s $375 billion grocery industry, as per data from the Retailers Association of India.
“In the near future JioMart … and WhatsApp will empower nearly 30 million small Indian kirana shops. It will help the shops to digitally transact with every customer in their neighbourhood. So it’s a good tie-up,” Mukesh Ambani, Reliance’s CEO said in a video statement.
Advantage WhatsApp users
‘WhatsApp’ has 400 million users in India, its biggest market. It has been trying to secure approval to roll out its digital payment service in India. The aim is to compete with the likes of Google Pay.
“Both Jio and Facebook want to tap feature phone users. Both have been trying to tap payments and both want to increase grassroots adoption,” said Tarun Pathak a financial analyst. A marriage of ‘JioMart’ and ‘WhatsApp’ services will help reach grassroots users who shop from small stores, he said.
Facebook’s investment will make it the largest minority shareholder in Jio Platforms, Jio said Wednesday. It put the enterprise value of the business at about $66 billion.
Jio holds a host of Reliance’s digital assets including Jio Infocomm. The latter has become the country’s largest telco within three years of its launch. It has roughly 370 million subscribers.
Cutting down on debts
Reliance has also expanded its retail business as profits at its oil and chemical refining business have taken a hit. But expansion has caused its debt to surge to $40 billion as of September. Reliance has said it wants to cut net debt to zero. So certainly the new deal will help in reducing debts.
“With crude prices where they are, the main oil and gas business will be under pressure. (The Facebook deal) allows them (Reliance) to cut some debt. It also helps in establishing a valuation for the Jio business,” said Rusmik Oza, executive vice-president at Kotak Securities.
Reliance is also set to sell stakes in its refining business to Saudi Aramco, and in its telecom tower assets to Brookfield.
Agencies