Facebook will invest US$5.7-billion in the digital assets controlled by India’s richest man, the US social-networking giant’s biggest deal since the 2014 purchase of WhatsApp as it seeks a broader foothold in its biggest global market.
The US company will buy about 10% of Jio Platforms, becoming the largest minority shareholder, Reliance Industries said in a statement on Wednesday. Separately, Facebook said the deal would bring together JioMart, an e-commerce venture of Mukesh Ambani and its WhatsApp platform to enable people to connect with businesses.
Jio Platforms, a wholly owned unit of Reliance Industries, brings together Jio’s digital apps, ecosystems and the wireless platform offered by telecommunications carrier Reliance Jio Infocomm under one umbrella, according to the Mumbai-based company. The deal values Jio Platforms at a pre-money enterprise value of about $66-billion, the Indian company said.
The partnership with Jio would allow Facebook CEO Mark Zuckerberg to step up his expansion in a country that is rapidly embracing online payments and e-commerce as more people get smartphones. Jio Infocomm burst onto the Indian wireless market about four years ago, quickly moving into a position of dominance by offering free plans and undercutting rivals. Working with Facebook would be a boost to the ambitions of Ambani, until recently the richest man in Asia, who has been remaking his energy conglomerate as India’s first titan of e-commerce.
It is an unusual bet for Facebook, which typically buys into media and online properties. It underscores the potential it sees in India, which unlike China is an open market with an exploding smartphone population. Facebook may benefit from a well connected ally in the country, where its Whatsapp is trying to launch a payments service but has run afoul of regulators over fake news and privacy concerns.
‘Special place’
“India is a special place for us,” Zuckerberg said in a video posted on Facebook. “We’re also committing to work together on some critical projects that we think are going to open up a lot of opportunities for commerce in India.”
Zuckerberg has long aimed to roll out a digital currency as well as tools that let users make payments and buy and sell products over the social network’s messaging services in India.
With its half a billion Internet users, the South Asian country is an alluring market for the world’s largest technology companies, including Amazon.com, Apple, Microsoft and Google. In India, Facebook has about 250 million users, while WhatsApp has over 400 million.
While India will be a testing ground for WhatsApp payment services — currently in pilot — Zuckerberg is also separately looking at the market for his cryptocurrency project called libra. Zuckerberg has said that payments and commerce are a priority, representing a major business opportunity for the company moving forward.
For Ambani, 63, the deal with the technology giant comes as a boost at a time when his group is battling the impact of the coronavirus pandemic and a slump in demand for crude oil. He has also been seeking to reassure investors that he will honor a pledge to reduce the group’s net debt to zero.
“The collaboration with Facebook will give Jio a significant advantage on product and technological fronts to keep competitors miles away and grab a larger wallet share of consumers across domains — telecoms, payments, retail,” Himanshu Shah, an analyst at Dolat Capital Market wrote in a research note.
The Indian company spent almost $50-billion — mostly borrowings — to build Jio Infocomm, the mobile carrier, leading to a net debt of more than $20-billion as of March 2019. In August, he told shareholders that he planned to sell a stake in Reliance Industries’ oil-and-chemicals division to Saudi Arabian Oil as part of a road map to cut net debt to zero by March 2021.
With the Aramco negotiations dragging on for months, the global health crisis and the crash in oil prices have also raised doubts if that deal will be signed. As a result, shares of the Mumbai-based conglomerate plunged as much as 45% from their 19 December record, before rebounding from their 23 March low.
After building a wireless carrier and a retail business, Ambani has said he plans to rope in “leading global partners” before initial public offerings as he readies an e-commerce business, called JioMart, which would rival Amazon and Walmart in the South Asian country.
E-commerce push
In a statement delivered by video, Ambani said the tie-up with WhatsApp will help almost 30 million Indian mom-and-pop store owners to take digital payments from customers in their neighbourhoods.
“This means all of you can order and get faster delivery of day-to-day items from nearby local shops,” he said.
Simultaneously, Jio Platforms, Reliance Retail and WhatsApp have also tied up to help accelerate the retail unit’s e-commerce push on the JioMart platform, Reliance Industries said in the statement.
The new businesses are likely to account for 50% of Reliance Industries’ earnings in a few years, versus a little more than 32% now, Ambani told shareholders in August.
Reliance Industries and Facebook denied an Indian media report last week that they are considering creating an app similar to WeChat, the Chinese mobile messaging and payment service run by Tencent.
“The intent is not to build another app, the intent is really for the two companies to collaborate,” said Ajit Mohan, vice president and MD for India at Facebook.
Now that the deal has been formally announced, the companies will start working with Indian regulators to seek approval, said Anshuman Thakur, Jio’s head of strategy.
Facebook has not been consistently welcomed by Indian regulators in the past. It ran into opposition while trying to launch a payments feature inside WhatsApp in 2019, and has also faced pushback around content regulation on the app, which is encrypted. Facebook tried — and failed — to bring a service to India in 2015 called Free Basics, which would have made some Internet services, including the social network, free to use on mobile devices. Critics said the app violated the concept of net neutrality by prioritising some services over others.
“Given the intent of this collaboration and the nature of this partnership, we expect people to be welcoming,” Thakur said. — Reported by Anto Antony, Kurt Wagner and Manuel Baigorri, with assistance from Saritha Rai, P R Sanjai, Edwin Chan and Jeanette Rodrigues, (c) 2020 Bloomberg LP
