India's Reliance reportedly offers to sell $20bn stake in retail unit to Amazon

A deal, if successful, would create a retail behemoth in one of the fastest-growing consumer markets in the world

A man walks past a Reliance Industries Limited sign board installed on a road divider in the western Indian city of Gandhinagar January 17, 2014. Indian energy conglomerate Reliance Industries reported a nearly flat profit of 55.11 billion rupees ($895 million) for the December quarter but beat analyst estimates, helped by stable margins in its main refining business. REUTERS/Amit Dave (INDIA - Tags: BUSINESS ENERGY) - GM1EA1H1L8B01

Indian billionaire Mukesh Ambani’s Reliance Industries is offering to sell a roughly $20 billion (Dh73.4bn) stake in its retail business to Amazon.com, according to a person with knowledge of the matter.

Amazon has held discussions about investing in the conglomerate’s Reliance Retail Ventures unit and has expressed interest in negotiating a potential transaction, the person said. Mumbai-based Reliance Industries is willing to sell as much as a 40 per cent stake in the subsidiary to Amazon, the person said, asking not to be identified because the information is private.

A deal, if successful, would not only create a retail behemoth in India but will also turn Jeff Bezos and Asia’s richest man from rivals into allies in one of the fastest-growing consumer markets in the world. At $20bn, the deal would be the biggest ever in India as well as for Amazon, according to data compiled by Bloomberg.

Shares of Reliance Industries touched an all-time high after the Bloomberg News story. The stock surged as much as 8.5 per cent during trading in Mumbai. It was the day’s top gainer on the benchmark S&P BSE Sensex, which advanced 1.8 per cent intra-day on Wednesday.

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The deal would be a highly complementary one that builds on the strengths of either side

The Indian rupee rose as much as 0.5 per cent to 73.1588 per dollar on expectations of more capital inflows.

In India, where a lot of people still shop in tiny street-corner stores, the deal could be Amazon’s way of acknowledging that it needs a locally-entrenched partner with a strong on-the-ground presence. For Amazon, Reliance would provide a brick-and-mortar component to its ambitions in a country where online purchasing still accounts for a minuscule share of an estimated $1 trillion retail market.

“The deal would be a highly complementary one that builds on the strengths of either side,” said Utkarsh Sinha, managing director at Bexley Advisors in Mumbai. “Amazon comes with the might of its warehousing capabilities and the ability to streamline supply chains and sweat assets for maximum returns.”

Amazon hasn’t made any final decision on the size of its potential investment, and talks could still fall apart, the person said. A representative for Amazon declined to comment.

“As a policy, we do not comment on media speculation and rumors,” a Reliance spokesman said in an emailed response to Bloomberg News. “Our company evaluates various opportunities on an ongoing basis. We have made and will continue to make necessary disclosures in compliance with our obligations.”

Any deal between the two would also bolster the partnership that was indirectly forged last month through an unrelated purchase by Mr Ambani’s group when it bought assets of indebted rival Future Group. Amazon had invested in one of Future’s unlisted firms last year and later expanded the alliance.

Such an investment by Amazon also means the titan is altering its playbook after learning from past failures in the region. Earlier, the online juggernaut’s strategy of going it alone in China flopped in the face of competition from domestic giants including Alibaba Group and JD.com.

For Reliance, the deal will give further credence to Mr Ambani’s ambitions to create an e-commerce giant for India akin to Alibaba Group. Reliance Retail already lured about $1bn from Silver Lake Partners, in a deal that valued the firm at about $57bn.

The US private equity firm KKR & Co. is in advanced talks to invest at least $1bn and L Catterton is also considering investing, Bloomberg News reported on Wednesday.

The investment in Mr Ambani’s retail ventures comes after he raised $20bn selling stakes in his technology venture – Jio Platforms – to investors including Facebook and Google.

The 63-year-old-tycoon, who’s added $24bn to his personal wealth this year, told shareholders in July that the retail unit would be next in line for investors to come on board.

Reliance Retail – a unit of the energy-to-telecommunications conglomerate Reliance Industries – runs supermarkets, India’s largest consumer electronics chain store, a cash and carry wholesaler, fast-fashion outlets and an online grocery store called JioMart. It reported 1.63 trillion rupees ($22bn/Dh81.5bn) in revenue in the year through March 2020. The unit operates almost 12,000 stores in nearly 7,000 towns.

For the Indian business mogul – who has identified technology and retail as future growth areas – the investments would further help to pivot the group away from the energy business he inherited from his father, who died in 2002.

While Mr Ambani is keen to sell stakes to marquee foreign investors, he’s actively acquiring local retail assets to bolster his leadership position.

Besides the Future Group purchase, Reliance is in negotiations to acquire smaller firms such as Urban Ladder, an online furniture seller and Zivame, a lingerie maker, people familiar with the matter said last month.

A stake stale to Amazon, however, may need to clear antitrust hurdles. A collaboration between the world’s largest online retailer with a strong presence in India and the country’s top offline retailer could lead to market concentration risks that may invite regulatory scrutiny.

Bexley’s Mr Sinha also warned of “potential unintended consequences” if the transaction succeeds. “It is not inconceivable that this stifles any other entity from gaining scale in Indian retail space,” he said.