When Donald Trump visited India in February, the country’s wealthiest man, Mukesh Ambani, directly explained to the President why American companies should work with his telecommunications and digital services firm Jio Platforms.
“We are the only network in the world not to have a single Chinese component,” explained Mr. Ambani, president of the Reliance Industries conglomerate. “Oh, that’s good,” said Mr. Trump with an approving smile. “Make an offer. “
Since then, when the spread of the coronavirus has sparked a hostile reaction to China in both countries, American investors, including the Silicon Valley titans, have made their way, Jio having accepted four deals last month.
Private equity group General Atlantic announced Sunday that it will invest $ 870 million in Jio at a valuation of $ 65 billion, following $ 1.5 billion in investments earlier this month from Vista Equity Silver Lake partners and $ 750 million.
They followed a $ 5.7 billion investment in late April from Facebook, the largest social media group outside of the WhatsApp acquisition in 2014.
The US deal chain is a big boost to Ambani’s attempt to reposition his vast energy-consuming conglomerate as a consumer internet giant, India’s response to people like Alibaba in China. For Jio’s American investors, this links their fortunes in the booming Indian market – arguably the most promising outside of China – to the country’s most powerful tycoon.
Jio “is the most ambitious company I have ever seen,” said a person familiar with the deals. “It’s Vodafone, plus Tencent, plus one [handset] maker. . . Very rarely do you make the transition to becoming a great technologist, but they have succeeded in doing so. “
Meanwhile, the Saudi Arabian Public Investment Fund is in talks with Jio to invest about $ 1.5 billion, said someone familiar with the talks. PIF declined to comment.
Since he inherited his father’s petroleum products business in 2005, Mr. Ambani has pushed Reliance Industries into retail, telecommunications and technology, from streaming and payments to e-commerce. Ambani said he would step down and enroll Jio within five years.
Robert Smith, founder and president of Vista, said that Jio was on the verge of propelling a wave of Internet adoption among Indian consumers and small businesses. “Mukesh Ambani’s vision for a digital transformation of the Indian economy comes to life thanks to the power of Jio’s platform. “
Reliance bet early on that its new businesses, rather than its old oil and chemical businesses, would spur future growth, said another person familiar with Jio’s strategy. “This is a big change in where the value comes from and where the market expects value to go forward. “
The main energy activities of Mr. Ambani being faced with a prolonged global slowdown, this digital diversification seems increasingly premonitory. He is under pressure to show that he can bring his new businesses to maturity, enter into agreements to generate cash and ease the debt burden on Reliance. Ambani has pledged to reduce net debt by more than $ 20 billion to zero within a year.
Reliance’s energy business, which still generates the bulk of the revenue and funded its Big Tech campaign, is subject to the tensions caused by coronaviruses in the global oil markets.
A 75% drop in crude oil prices between January and March forced it to write off more than $ 500 million in inventories and record its largest drop in net profit in more than a decade. The closures are blocking demand for its fuels and petrochemicals, resulting in temporary wage cuts for employees and executives.
The pain is expected to intensify, with an expected collapse in economic growth this year that is expected to undermine energy demand. This has complicated a crucial element of Reliance’s strategy: a proposed deal for Saudi Aramco to take a 20% stake in Reliance’s energy business for around $ 15 billion.
Analysts have questioned whether the deal will close, given the collapse in oil prices. A person familiar with the negotiations said that the blow to the Saudi state giant’s revenues had fueled reservations about the deal, noting that “Aramco’s deal is still pending”. Reliance said the deal was on track with ongoing due diligence.
This added urgency to other fundraising opportunities at Reliance, the company said last month that it would raise $ 7 billion through a rights issue, the largest ever in India. Despite a 7% drop last week before the planned stock sale, its stock has risen more than 60% since late March. Stocks closed 1.6% higher on Friday.
Reliance has also courted international investors to buy stakes in its fiber and tower assets, which it has transformed into investment trusts. Canadian asset manager Brookfield has reached a $ 3.3 billion deal to acquire the mast operations, and Reliance said discussions on fiber assets “are at an advanced stage.”
For Jio’s new American investors, the young company presents a growth opportunity that is difficult to reproduce elsewhere. Since its launch in 2016, Jio has attracted 388 million users – more than the entire American population – thanks to its ultra-cheap mobile contracts and attractive promotional offers.
Last month, he paired his new grocery e-commerce service with Facebook’s WhatsApp, which has 400 million users in India, giving it unparalleled reach among consumers.
“The courage it takes to spend $ 40 billion to build a computer network, all in 4G, a business model that offers free voice calls and then provides a growing range of digital services,” said one of the people. familiar with Jio’s strategy. “It is the largest company in India. “
At Mr. Ambani, new investors will also benefit from a valuable ally in what can be a delicate market for foreign companies. Facebook, in particular, has often clashed with Indian authorities with a pending data protection bill promising strict rules and its budding WhatsApp payment service delayed by regulators for two years. In e-commerce, tech giants like Amazon have faced restrictions that don’t apply to domestic companies like Reliance.
” Because [Mr Ambani] is so powerful you prefer to keep [him] as a partner as well as a competitor, “said a Mumbai-based executive.
Reliance said its digital strategy is being confirmed, with its new units uniquely positioned to thrive even though the viral emergency is shaking up other business models. He said that data traffic has increased since India was taken into custody at the end of March and that it has launched a foray into rapidly growing areas such as videoconferencing.
Industry observers have said there are few precedents for companies achieving such sweeping changes in strategy.
“We were trying to determine if a telecom operator had built a large piece of e-commerce, or if an oil and gas company had tried to reposition themselves on the consumer side and confront players like Amazon,” said Rahul Malhotra by Bernstein. “It is very difficult to find small examples of what Reliance is building. “
Additional reporting by Simeon Kerr