Social media giant, Facebook Inc. or Facebook is in talks with one of the largest commemorate groups in India, Reliance Industries Ltd. (Reliance) aiming to spend $5.7 billion for acquiring 10% of Reliance’s digital business unit, JioMart. Facebook, which has recently decided to expand its digital payment services in Indonesia by a partnership with local digital firms, wanted to expand its leverage its popular WhatsApp messenger to offer digital payment services to small grocers in India.
Facebook as the Largest Minority Shareholders in Jio
Reliance’s Jio officials said on Wednesday, April 22, 2020, that the latest Facebook’s investment would make it the largest minority shareholder in Jio Platforms, which would put the Jio enterprise market value at about $66 billion. Meanwhile, the deal would also help Reliance to cut debt that has incurred for its attempt to secure top spot for Jio Infocomm telecom, and help boost its new online grocery marketplace JioMart.
The online grocery market in India has been a lucrative yet competitive business due to the participation of several giants including Amazon’s Pantry pushing for market share with Walmart’s Flipkart and BigBasket backed by China’s Alibaba. According to data from the Retailers Association of India, a lot of unexplored markets existed in India’s kirana stores, or small grocers, which were the lifeblood of the country’s $375 billion grocery industry.
Mukesh Ambani, billionaire CEO of Reliance said in a video statement, “In the near future JioMart … and WhatsApp will empower nearly 30 million small Indian kirana shops to digitally transact with every customer in their neighborhood.” Under this deal, Facebook also aimed to secure approval of its newly introduced digital payment service in India since its popular app, WhatsApp has 400 million users in India, its biggest market.
Reducing Reliance’s Debts
Tarun Pathak, associate director at Hong Kong-based Counterpoint Research, explained, “Both Jio and Facebook want to tap feature phone users; both have been trying to tap payments and both want to increase grassroots adoption.” He added that the combination of the two units i.e. Jiomart and WhatsApp services would strengthen grassroots users who usually shop for small stores in India.
Jio Platforms, which holds a host of Reliance’s digital assets including Jio Infocomm, has become the country’s largest telecom company within about three years of its launch. It has roughly 370 million subscribers.
However, the Jio expansion has caused a surge of its debts to $40 billion as of September. Citing Reliance has promised to cut net debt to zero, the company has announced plans to sell stakes in its refining business to Saudi Aramco, and in its telecom tower assets to Brookfield. Rusmik Oza, executive vice president at Kotak Securities, said, “With crude prices where they are, the main oil and gas business will be under pressure. (The Facebook deal) allows them to cut some debt, and also establish a valuation for the Jio business.”
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