Asia News Sep 24

The Reliance juggernaut rolls on

Having raised more than $20 billion this year from global investors for telecom, Asia's richest man Mukesh Ambani is now lining up investors in its retail unit

The Reliance juggernaut rolls on
Mukesh Amabni, the deal-maker.

(ATF) In what has turned into a virtual stampede by global investors to back a Reliance business, global private equity giant KKR announced on Wednesday that it will sink $755 million in Reliance Industries’ retail unit Reliance Retail Ventures Limited (RRVL). The aim of the acquisition is to fuel growth of "India's fastest-growing retail business and its transformational new commerce model”.

This marks the second investment by KKR in a Reliance subsidiary, following an investment of more than $1.54bn in Jio Platforms earlier this year. The investment also values RRVL at a pre-money equity value of $57bn and translates into a 1.28% equity stake in RRVL on a fully diluted basis.

“We are pleased to deepen our relationship with Reliance Industries through this investment in Reliance Retail Ventures, which is empowering merchants of all sizes and fundamentally changing the retail experience for Indian consumers,” said Henry Kravis, co-founder and co-CEO of KKR 

“Reliance Retail’s new commerce platform is filling an important need for both consumers and small businesses as more Indian consumers move to shopping online and the company offers tools for Kiranas (mom-and-pop stores) to be a critical part of the value chain. We are thrilled to support Reliance Retail in its mission to become India’s leading omnichannel retailer and ultimately to build a more inclusive Indian retail economy,” he added.

Long road ahead

Yet even as the Reliance juggernaut seems to have been forging ahead for the past six months – and beating expectations despite the global recession – analysts said there were no big surprises in this deal.

One said the deal did not result in any incremental valuation for RRVL; earlier in September RIL raised $1.02 billion from Silver Lake Partners for its retail arm that also valued RRVL at $57bn.

RRVL still faces the daunting challenge of the next phase – fulfilling the promise of operations, delivery and expansion. And, to deliver on retail is more complex because that involves physical merchandise, which in turn involves efficient supply chains and huge infrastructure, as well as satisfying the diverse demands of a diverse population like India, analysts add.

READ MORE: Reliance offers India’s growth story to its strategic and tactical investors

Reliance’s retail venture faces fierce competition from global e-commerce platforms like Amazon-India and Walmart’s Flipkart, which have already taken the lead by providing robust platforms to millions of new commerce ventures.

While RRVL is trying hard to get into that space, analysts reckon it will take at least three years to get there.

'Speeding ahead'

Still, Reliance chief Mukesh Ambani claims that his retail unit has emerged as the fastest-growing new commerce entity already.

"RRVL operates India's largest, fastest-growing and most profitable retail business, serving close to 640 million footfalls across its over 12,000 stores nationwide,” Ambani said in a statement.

RRVL’s vision is to galvanise the Indian retail sector through an inclusive strategy serving millions of customers by empowering millions of farmers and micro-, small- and medium-sized enterprises and working closely with global and domestic companies as a preferred partner, to deliver immense benefits to Indians, he added.

RRVL’s "New Commerce strategy", according to RIL, has also started a transformational digitalisation of 20 million small and disparate merchants to enable them use technology tools and an efficient supply chain infrastructure to deliver a superior value proposition to their customers.

Regardless, Ambani’s deal-making spree is likely to continue, expect analysts.

"The second stake sale in the retail business is credit positive as it signals that the company continues to further improve its already strong capital structure, said Sweta Patodia, a corporate finance analyst at Moody’s Investors Service. "The stake sale also reinforces the valuation set by the previous deal with Silver Lake and will allow the company to further monetise its retail business, if it decides to do so.” 

READ MORE: Digital arm of India’s Reliance draws investors

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