Tuesday, June 2, 2020

Facebook floats 'Jaadhu Holdings' to do business with Jio

Jaadhu, in Hindi, means magic.

Well, that is what Facebook probably hopes to create with its $5.7 billion (Rs 43,573 crore) investment in Reliance Jio Platforms for a 9.99% stake.

Jaadhu Holdings, as it happens, is the name of the new company that Facebook has incorporated for its deal with Jio Platforms.

Jaadhu Holdings is the one that will acquire a minority, non-controlling share in Jio Platforms.

Quite tellingly, a very Indian name for the new entity reveals the nature of the deal and which side it is tilted towards now.

The name of the new company, incorporated in Delaware, USA, emerged in a submission to Competition Commission of India seeking clearance for the $5.7 billion deal that was announced in April.

According to Economic Times, "Jio Platforms, Facebook-owned instant messaging service WhatsApp Inc and Reliance Retail Ltd will also enter into a separate commercial agreement."

Local is the goal 

Ineterestingly, the official filing echoes the larger political exhortation from Prime Minister Narendra Modi for being "vocal for local".  

“The Proposed Transaction and the Proposed Commercial Arrangement are pro-competitive, benefits consumers, Kirana (corner) stores and other small and micro local Indian businesses, and take forward the vision of digital India,” the filing read.

The deal will help Reliance cut its spiraling debt pile while providing the social media giant with a strong foothold in India’s fast-growing market. Facebook’s decision to move ahead with the investment despite the looming risk of a global economic meltdown signals its confidence in the Indian economy.

The alliance is also expected to help Reliance and Facebook to take on the Indian digital payment space, which is expected to rise five-fold to reach $1 trillion by 2023, and compete with the likes of PhonePe, Amazon Pay, Paytm, and Google Pay. 

India is home to the largest user base for Facebook, with around 328 million monthly users, while the company’s messaging app WhatsApp has 400 million users in the country, also the highest in the world. The partnership is expected to fortify WhatsApp’s plan to secure approval to roll out its digital payment service. At the same time, the company also has plans to come up with dedicated digital payment services to small grocers.

Three more from the Gulf region

After Facebook and Jio Platforms clinched a deal, a slew of big-ticket technology investors have also joined the bandwagon. The subsidiary of Mukesh Ambani-led Reliance Industries has raised a further Rs 34,988 crore from KKR, Vista Equity Partners, General Atlantic and Silver Lake, at an equity value of Rs 4.91 lakh crore and an enterprise value of Rs 5.16 lakh crore.

(You can read everything about Jio Platforms and its various investors in our comprehensive coverage here). 

Meanhwile, media reports also have it that three large Middle Eastern sovereign wealth funds are in advanced talks to invest in Jio Platforms.

Abu Dhabi’s Mubadala Investment Co is nearing a deal to invest about US$1 billion into Jio Platforms and an announcement could come as soon as this week. 

Jio Platforms is also in discussions with Abu Dhabi Investment Authority and Saudi Arabia’s The Public Investment Fund.

Stage set for Jio Mart

The string of investments by technology giants and private equity firms will go a long way in helping Mukesh Ambani achieve his stated goal of slashing debt at Reliance Industries. The outside money also helps set a valuation for Jio Platforms, which hopes to get listed, if market rumours are to be believed, at Nasdaq.

Apart from the debt reduction, these deals are vital for another reason. Before the pandemic, a mere 1% of India’s Rs 80,000 crore grocery market was represented by online players. However, post the lockdown, e-commerce companies selling essential items experienced an upsurge in demand.

At the core of Jio Platforms's strategy is targeting thousands of offline small businesses, whom both Reliance and Facebook have been planning to integrate into their ecosystems.

The newly-emerged Jio Mart is expected to be the prime mover in this e-commerce campaign from the Reliance stable.  

In February, WhatsApp got the formal approval from the National Payments Corporation of India (NPCI) for payment services in India – potentially a game-changer in the digital payment landscape.

According to industry experts, the market opportunities for online commerce in India is predicted to reach $200 billion by 2028 from $30 billion in 2018.


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