KKR to invest $755 million in retail arm of India’s Reliance

Reliance Industries Limited (RIL), controlled by Asia’s richest man Mukesh Ambani, has raised 1.65 trillion rupees ($22.43 billion) over the past few months through stake sales at its digital unit Jio Platforms and its retail arm Reliance Retail Ventures.

On Wednesday the company announced a $755.1 million investment from KKR & Co in its retail arm, giving it a pre-money valuation of 4.21 trillion rupees ($57.28 billion).

Earlier in September, Reliance raised $1.02 billion from Silver Lake Partners for its retail arm

The latest investments at Reliance Retail come after the conglomerate raised 1.52 trillion rupees ($20.66 billion) at its digital unit by selling stakes to 13 global investors

Investors in Jio include Facebook, Silver Lake, Vista Equity Partners, General Atlantic, KKR & Co, Mubadala, Abu Dhabi Investment Authority, TPG, L. Catterton, Public Investment Fund of Saudi Arabia, Qualcomm, Intel Corporation and Alphabet’s Google

Reliance has sold nearly 33% in Jio through the stake sales, including a $4.5 billion investment by Google, giving the unit an equity valuation of $59.32 billion The stake sales at Jio also helped the conglomerate become net-debt free in June

Reliance’s shares have risen 173% in the last three years, as of Tuesday’s close. Shares of Reliance Industries on Wednesday surged nearly 3 per cent on the announcement that global investment firm KKR will invest Rs5,550 crore into its subsidiary Reliance Retail Ventures Limited to pick up 1.28 per cent equity in the company.

RIL shares are traded at Rs2,251.40, higher by Rs40.25 or 1.82 per cent from its Tuesday’s close. Its market capitalisation is around Rs15.22 lakh crore.

The conglomerate’s telecom unit had 392.7 million subscribers as of May since its launch in late 2016.

Reliance’s oil and gas, refining and petrochemical businesses once underpinned its growth, but they have taken a sharp hit as oil prices collapsed. In July, the company reported a nearly 44% fall in quarterly revenue as the COVID-19 pandemic destroyed demand for refined oil products

In addition to operating the world’s biggest refining complex, Reliance also operates supermarkets and TV channels.

The Mumbai-headquartered Reliance has approached investors in Jio Platforms about buying stakes in its retail arm, Reuters had reported. While Silver Lake, another one of Jio Platforms’ backers, said earlier this month it will invest $1.02 billion in Reliance Retail.

KKR’s investment for a 1.28% stake in Reliance Retail values the company at 4.21 trillion rupees ($57 billion), Reliance said in a statement.

“Retail, whether online or offline, is a very capital-intensive business, so for Reliance making sure that their retail venture has a funding pipeline of its own is important,” said Devangshu Dutta, the chief executive of retail consultancy Third Eyesight.

KKR, which announced its biggest investment in Asia with a stake buy in Jio Platforms in May, said it was deepening its relationship with Reliance.

Reliance Retail is “empowering merchants of all sizes and fundamentally changing the retail experience for Indian consumers,” KKR co-founder Henry Kravis said in the statement.

Reliance, already India’s biggest retailer with roughly 12,000 stores, forged a $3.38 billion deal last month to acquire rival Future Group’s retail business.

The Indian conglomerate is also attempting to expand its so-called new commerce venture, which ties neighborhood stores to Reliance for online deliveries of groceries, apparel and electronics in a space currently dominated by Walmart Inc’s Flipkart and Amazon.com’s Indian arm.

“Anyone taking on the deep-pocketed Amazon and Walmart has to make sure they are equally well-capitalized,” Dutta said.

Retail asset monetisation is picking up pace as private equity firm KKR announced a Rs55.5 billion ($ 0.75 billion) investment in Reliance Retail for a 1.28 per cent stake implying a pre-money equity value of $57 billion.

According to a report by Morgan Stanley, the valuation is in line with the last transaction valuation announced with Silverlake and compares to its retail base case valuation of $45 billion.

“At these valuations, it would add 6 per cent to Morgan Stanley’s base case NAV for RIL. KKR earlier invested $1.51 billion for 2.3 per cent of Reliance Digital platforms. RIL has sold a 3 per cent stake in RIL retail till date for $1.75 billion,” the report said.

“We see capital allocation, execution and de-gearing as key to the next leg of stock outperformance,” the report said.

Agencies