Silver Lake deal – Likely precursor to more stake sale(s) by RIL in Jio Platforms

In less than two weeks, the equity value of Jio Platforms, controlled by Reliance Industries (RIL), seems to have vaulted up a neat 12.5 per cent or so.

US-based private equity firm Silver Lake will invest ₹5,655.75 crore in Jio Platforms for about 1 per cent stake. This pegs Jio Platforms’ equity value at ₹4.90-lakh crore and its enterprise value at ₹5.15-lakh crore. RIL says that this represents a 12.5 per cent premium to the equity valuation of the Facebook investment in Jio Platforms that was announced on April 22. Facebook will be paying ₹43,574 crore for 9.99 per cent in Jio Platforms, valuing the latter at an enterprise value of ₹4.62-lakh crore and equity value of ₹4.36-lakh crore. The valuation of the Facebook deal itself was 10-15 per cent higher than what many analysts were earlier estimating.

Indications of continuation of the deal momentum in Jio Platforms were given in last Thursday’s March 2020 quarter results announcement by RIL. The company had said that in addition to the Facebook investment, it has received strong interest from other strategic and financial investors and is in good shape to announce a similar sized investment in the coming months.

The follow-up with the Silver Lake deal has been quick. More deals for stake sale in Jio Platforms could be on the anvil, going by RIL’s statement last Thursday on ‘interest received for similar-sized additional stake (as the Facebook deal)’. So, more deals to sell another 9 per cent or so in Jio Platforms cannot be ruled out, even if the timing and valuation remain uncertain. After these deals, RIL could likely retain about 80 per cent in Jio Platforms. This will further reduce as and when RIL decides to list Jio Platforms through an initial public offer (IPO). The recent deals could be preparing the ground for an IPO in the not-too-distant future. RIL currently holds 100 per cent stake in Jio Platforms and after the deal consummation with Facebook and Silver Lake will hold about 89 per cent.

The deals over the past few days in Jio Platforms, along with the upcoming rights issue of ₹53,125 crore and the previous investment by British Petroleum, should help RIL in its stated objective of raising capital of over ₹1.04-lakh crore by the June 2020 quarter, and becoming net-debt free by March 2021. The company’s net debt (debt less cash) as on March 2020 is about ₹1.6-lakh crore. The company’s debt-to-equity ratio as of March 2020 is 0.74 times.

The Silver Lake deal announcement seems to have helped contain the fall in the RIL stock (down about 2 per cent on Monday), compared with the about 6 per cent tumble in the BSE Sensex.

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