Reliance overcomes Oil dependence with the help of Facebook and Google investment

  • by Amandeep Saluja
  • July 16, 2020

Recent Investments in Mukesh Ambani empire has helped him to embark on the new journey. Asia’s richest person is no longer only dependent on his oil empire which he inherited from his father.

The Reliance Industries annual’s meeting would be a different one this year where Ambani meets the shareholders, not as an oil tycoon. His string of deals has managed Reliance to release itself from the captivity of oil-price fortunes. The deals with Facebook and other Silicon Valley tycoons has given Reliance a new thrust in the e-commerce and technology space.

Value of Reliance stocks has more than double because of this fundraising rounds collecting around $16 billion. This all is happening around a time when the oil market has become delicate even after recovering from a two-decade low.

With the help of this deals, Mukesh Ambani has achieved his most important agenda of transforming Reliance from an energy company to an e-commerce behemoth. The same is also reflecting on the company’s stock prices. Reliance now has a beta of 0.14 with Brent crude. This means that if supposedly there is a 1% weekly drop in oil it causes no more than 0.14% drop in the Reliance shares. Comparing this factor with the 2008 recession it stood as high as 0.7 according to Bloomberg show.

Jio is all set on a trail to create an Indian version of Alibaba. Recent deals with Facebook and other big players have given the nod of Silicon valley tycoons thereby luring different investors. The investors understand the impact this deal would have on digital payments, education, online retail, and content streaming in a 1.3 billion population country.

Facebook has a clear intention behind its investment in Jio Platforms for about 10% share by paying $5.7 billion. The Tech giant wants to use Whatsapp to connect millions of small businesses with the customers. Whatsapp users in India are about 400 million equal to the number of Jio subscriber base for its wireless services.

Facebook investment has helped Asia richest men to leave their oil and energy business dependence. According to the data until 2017 all of Reliance revenue was from petrochemical and refining which has now plummeted to 65%. This all is due to a three-fold increase in revenue from retail and digital businesses since 2017.

According to Reliance there, net debt is zero. But the reality slightly deviates from this. Next year 75% of the rights issue funds will come into play. Macquarie Capital believes that Reliance has $16 billion in net debt. This debt is due to interest-bearing obligations like deferred spectrum charges and Capex creditors. An Off-balance sheet covered under its tower and fiber investment trusts also contributes to Reliance debts.

Aditya Suresh, head of India research at Macquarie said, “We are cautious on the ability of the company to generate sustainable free cash flow due to major expenditures in the digital and retail businesses,”

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Amandeep Saluja

Amandeep is a Co-founder & Business Development Executive at TSD Networks. Contact at 'amandeep@tsdnetwork.com'
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