Facebook to buy 10% of Ambani’s Jio Platforms in $5.7bn deal

The deal values the Indian company at a pre-money enterprise value of about $66bn

Regulation is a potential threat for big tech stocks. Facebook, for example, has faced disputes over tax, antitrust issues and privacy. AFP

Facebook will invest $5.7 billion (Dh21bn) in the digital assets controlled by India’s richest man, as the US social-networking giant seeks a broader foothold in its biggest global market.

The US company will buy about 10 per cent of Jio Platforms, becoming the largest minority shareholder, Reliance Industries said in a statement Wednesday. Separately, Facebook said the deal would bring together JioMart, an ecommerce venture of Mukesh Ambani and its WhatsApp platform to enable people to connect with businesses.

The deal values Jio Platforms at a pre-money enterprise value of about $66bn, the Indian company said.

The partnership with Jio would allow Facebook chief executive Mark Zuckerberg to step up his expansion in a country that is rapidly embracing online payment and e-commerce as more people get smartphones. Reliance Jio Infocomm burst onto the Indian wireless telecommunications 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 Mr Ambani, until recently the richest man in Asia, who has been remaking his energy conglomerate as India’s first titan of e-commerce.

The purchase is Facebook’s biggest since its 2014 acquisition of WhatsApp and an unusual bet for a company that 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 Facebook’s Whatsapp is trying to launch a payments service but has run afoul of regulatory scrutiny over fake news and privacy concerns.

“This investment underscores our commitment to India, and our excitement for the dramatic transformation that Jio has spurred in the country,” Facebook said in its statement.

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-billion internet users, the South Asian country is an alluring market for the world’s largest technology companies, including Amazon, Apple, Microsoft and Alphabet’s 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 -- Mr Zuckerberg is also separately looking at the market for his crypto-currency project called Libra. Mr Zuckerberg has said that payments and commerce are a priority, representing a major business opportunity for the company moving forward.

For Mr 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 Indian company spent almost $50bn -- mostly borrowings -- to build Jio Infocomm, the mobile carrier, leading to a net debt of more than $20bn 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 Co. 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 per cent from their Dec. 19 record, before rebounding from their March 23 low.

After building a wireless carrier and a retail business, Mr Ambani has said he plans to rope in “leading global partners” before initial public offerings as he readies an e-commerce business that would rival Amazon and Walmart in the South Asian country.

The new businesses are likely to account for 50 per cent of Reliance Industries' earnings in a few years, versus a little more than 32 per cent now, Mr Ambani told shareholders in August.

Jio Platforms, a wholly owned unit of Reliance Industries, brings together Jio’s digital apps, ecosystems and the wireless carrier’s platform under one umbrella, according to Reliance Industries.

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 managing director 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,” Mr Thaku said.