By: Samyak Jain
Mr Mukesh Dhirubhai Ambani. This person doesn’t need any introduction. We are all aware of his extremely inspiring story. From perfect planning to perfect implementation, Ambani ensures that he provides India with the best of whatever he has to offer. Reliance Industries Limited, as its website says, “Reliance Industries Limited is a Fortune 500 company and the largest private-sector corporation in India.”. It has “evolved from being a textile and polyester company to an integrated player across energy, materials, retail, entertainment and digital services”. [1] over 2 months from April 2020, Jio Platforms Limited sold 32.97% of its stake for Rs.1,52,055 crores to 14 multinational companies including Facebook, Google, Qualcomm, Intel, and Silver Lake. [2] Mark Zuckerberg, Founder and CEO of Facebook Inc. invested in Jio Platforms Limited to become the largest minority shareholder holding 9.99% of the company’s stake. I will try to explore this deal in more detail.
Source : Pexels
WHAT IS THE DEAL?
Jio Platforms Limited is a 100% subsidiary company of Reliance Industries Limited. It is a digital services company offering various services like telecommunication, entertainment, and e-commerce.
Jio Platforms Limited sold 9.99% of its stake for Rs.43,574 crores ($5.7 billion) to Facebook, Inc.[3] This sale made Facebook the largest minority shareholder in Jio Platforms. Facebook’s owned social media platform ‘WhatsApp’, which has the largest user base for any social media messenger app in India, will enter into a partnership with Reliance Retail Limited and Jio Platforms to initiate an e-commerce platform for the promotion of the businesses of local merchants and Kirana shops.[4] Just to be clear here, Reliance Retail Limited and Jio Platforms both come under the roof of Reliance Industries Limited (RIL). The local merchants and shop owners will list their products on the marketplace- JioMart. Apart from groceries, JioMart will also focus on the sale of electronics and fashion goods.[5] The owners will have their personal WhatsApp Business accounts where they can take feedback, accept orders, and promote their offers to their customers. Taking feedback and sending promotions to the customers will allow owners to maintain a personal touch even in an online mode. Location of the nearest Kirana store will also be shared with the user of ‘JioMart’ for their assistance anytime anywhere.[6]
FRUITS TO RIPEN
No company would sell 9.99% of its shares to an investor or vice versa. When we talk about this deal, everything starts making sense. Why would Jio Platforms give up 9.99% of its shares? Why would Facebook buy 9.99% shares in Jio Platforms?
Facebook’s “WhatsApp has 400 million users in India, as of July 2019.” [7] That is approximately 30.76% of the population of India. And yes, that’s huge. JioMart will be programmed to work through WhatsApp. The most used grocery shopping app in India is currently BigBasket [8] with around 15 million registered users as of September 2019.[9] That is just 3.75% of the users on WhatsApp. And so, this is a clear advantage point for Jio Platforms. It has a well-developed and ready-to-use user base. Apart from this, cash inflow of Rs 43,574 crores from Facebook may help Mukesh Ambani pay off a part of RIL’s debt of Rs 1,53,100 Crores.[10] How will this be done? RIL took over about Rs. 1 Lakh Crore of Reliance Jio Infocomm’s debt in consideration of Jio Platforms subscribing to the Optionally Convertible Preference Shares (OCPS) issued by Reliance Jio Infocomm. So basically, “RIL used its cash to finance Jio Platforms, which used the cash to finance RJio that, in turn, transferred the cashback along with the debt to RIL. So, effectively RIL took over the chunk of the RJio debt and got back its own cash, with Jio Platforms being the go-between.” [11]
This could be a reason that Jio Platforms gave up 9.99% of its stake to Facebook.
Moving on to the answer to why Facebook bought these shares, we must look at the prospects of business that WhatsApp was looking for in India. WhatsApp Pay, an integrated payment feature in the WhatsApp Messenger App. “It is a UPI-based payments service that allows you to both send and receive money.”[12] However, this launch was delayed because Reserve Bank of India imposed data localisation guidelines which state that “data relating to payments systems” should be “stored in a system only in India”. [13] Working in a partnership with Reliance, Facebook will be able to bring WhatsApp Pay services in the implementation channel. Also, Facebook has its cryptocurrency, Libra, and its cryptocurrency digital wallet, Calibra. However, as of now, Libra is not functional in India due to the absence of regulations and discouragement by the Reserve Bank of India relating to cryptocurrencies. It feels that it still has a ray of hope when Facebook’s representative, Alexandra Voica stated that "Calibra will respect the legislation", "But we are looking to work with regulators to see if the legislation can be updated".[14]
At this moment, both Reliance and Facebook need commerce. This deal allows them to work together rather than compete. Mukesh Ambani and Mark Zuckerberg(Founder, Facebook) both believe that this partnership will be a catalyst in accelerating the Indian economy and commerce, and will “make India the world’s leading digital society.”[15] The deal is being monitored by the Competition Commission of India(CCI). Ashok Gupta, chairman of CCI, said that CCI is reviewing the deal to prevent the “misuse of data in all deals it assesses.”[16] There are “over 388 million Internet connections in India, with over 300 million of them monthly active connections. Jio is India’s largest Internet Service Provider, accounting for more than half of its over 635 million Internet connections.” [17] Clearly, this is an outstanding network which in turn provides a large amount of data which will incentivise firms to carry out anti-competitive conduct. Currently, JioMart app is live in major cities. Ordering on JioMart through Whatsapp will be fully functional once the WhatsApp Pay features are enabled in India.[18] As of now, Whatsapp redirects the user to the official website of JioMart .The deal has been red-flagged by Justice Srikrishna with respect to data privacy and that’s because of the lack of privacy law in India. If everything goes well and gets implemented as good as it sounds, Reliance Industries Limited will bring in an addition to the Indian e-commerce and the economy.