MUMBAI: Shares of Reliance Industries Ltd touched an all-time high after subsidiary Jio Platforms Ltd announced it has received another large investment. The latest to join the list of marquee investors in Jio Platforms is Mubadala Investment Company, the Abu Dhabi-based sovereign wealth fund.
Mubadala’s investment of ₹9,093 crore for a 1.85% stake takes the tally of funds raised to a whopping ₹87,655 crore ($11.6 billion at current exchange rates). It seems like it has already achieved its planned target for fund raising ahead of an initial public offering of shares.
Recall that in its March quarter earnings presentation, Reliance had said it has achieved half of its targeted value unlocking in Jio Platforms. This was after Facebook Inc. made a strategic investment of ₹43,574 crore for a 10% stake in the company.
Since then, Silver Lake, Vista Equity Partners, General Atlantic, KKR and now Mubadala have matched Facebook’s outlay, with a cumulative investment of ₹44,081 crore in the company. Of course, they bought shares at a slightly higher valuation compared to Facebook. So while Facebook got a 10% stake, these investors together have a 9% stake. If the plan is to have a 20% share for outside investors, perhaps Jio Platforms is just another deal away from ending its fund-raising spree.
The Mubadala deal, like the previous four, values Jio Platforms at an enterprise value (EV) of ₹5.16 trillion. “Based on the EV/Ebitda ratio, this represents a 35-40% premium compared to Bharti Airtel’s India business,” said an analyst at a multinational brokerage. Ebitda stands for earnings before interest, tax, depreciation and amortisation.
Also, note that pre-IPO deals assume that fair value is generally higher. On listing, therefore, the general expectation is that Jio Platforms will be valued even higher than what the Street had pegged its valuations at. But at the same time, a listing would mean that investors start to apply a holding company discount, which may well bring things back to square one as far as the sum-of-the-parts valuation goes.
“In case of an eventual listing, the structure would gain importance, as listing of a subsidiary may prompt investors to build holding company discount in the overall valuation and the sum-of-the-parts value,” IIFL Institutional Equities said in a note to clients.
All eyes, therefore, are now on the much awaited potential Jio Platforms initial share sale. Reports have said the company is preparing for an overseas listing of its digital platforms subsidiary. This would peg valuations to technology giants such as Amazon, Apple and Microsoft.
Reliance’s recent presentation included a slide showing 10-year market capitalisation growth technology stocks versus aggregate energy sector market cap (S&P). It added, “Asset-light technology companies created more value over the last decade than aggregate market capital of energy companies in the S&P.”
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