Archives for September 2020

NEW DELHI: US private equity firm Silver Lake Partners has picked up 1.75 per cent stake in the retail arm of Reliance Industries for Rs 7,500 crore, the Indian firm said in a statement.

“Reliance Industries Limited and Reliance Retail Ventures Ltd (RRVL) announced today that Silver Lake will invest Rs 7,500 crore into RRVL, a subsidiary of Reliance Industries,” the statement said.

This investment values RRVL at a pre-money equity value of Rs 4.21 lakh crore. Silver Lake’s investment will translate into a 1.75 per cent equity stake in RRVL on a fully diluted basis.

This marks the second billion-dollar investment by Silver Lake in a Reliance Industries subsidiary after the USD 1.35 billion investment in Jio Platforms announced earlier this year.

“Reliance Retail Limited, a subsidiary of RRVL, operates India’s largest, fastest growing and most profitable retail business serving close to 640 million footfalls across its about 12,000 stores nationwide,” the statement said.

With more than USD 60 billion in combined assets under management and committed capital and a focus on the world’s great tech and tech-enabled opportunities, Silver Lake is the global leader in large-scale technology investing.

Its other investments have included Airbnb, Alibaba, Alphabet’s Verily and Waymo units, Dell Technologies, Twitter and numerous other global technology leaders.

After monetising Jio Platforms — which houses the firm’s telecom arm and digital ventures, richest Indian Mukesh Ambani is looking to rope in investors in the retail business.

Reliance may be looking to sell about 10 per cent of Reliance Retail. Late last month, Reliance acquired the retail and logistics businesses of Future Group for Rs 24,713 crore to boost its retail vertical.

Silver Lake was the first US private equity firm to invest in Jio after tech giant Facebook took a 9.99 per cent stake in the company for Rs 43,573.62 crore. Silver Lake bought 2.08 per cent in Jio in two tranches for a total of Rs 10,202.55 crore.

Rival private equity groups KKR, Vista and General Atlantic followed Silver Lake to take stakes in Jio. Other notable investors included Google and Abu Dhabi’s sovereign wealth fund Mubadala.

All investors in Jio Platforms including Silver Lake have been offered a chance to explore investing in Reliance Retail.

Ambani had at Reliance Industries’ recent annual general meeting stated that it had been approached by strategic/financial investors for a stake in Reliance Retail.

Commenting on the transaction with Silver Lake, Ambani, Chairman and Managing Director, Reliance Industries, said, “I am delighted to extend our relationship with Silver Lake to our transformational efforts of building an inclusive partnership with millions of small merchants while providing value to Indian consumers across the country in the Indian retail sector.”

“We believe technology will be key to bringing the much-needed transformation in this sector so that various constituents of the retail ecosystem can collaborate to build inclusive growth platforms. Silver Lake will be an invaluable partner in implementing our vision for Indian Retail,” he said.

Commenting on the investment, Egon Durban, Co-CEO and Managing Partner of Silver Lake, said, “we are pleased to deepen our relationship with Reliance with this investment.

Mukesh Ambani and his team at Reliance have created an outstanding world leader in retail and technology through their courageous vision, commitment to societal benefits, innovation excellence and relentless execution.”

“The success of JioMart in such a short time span, especially while India, along with the rest of the world, battles the COVID-19 pandemic, is truly unprecedented, and the most exciting growth phase has just begun. Reliance’s new commerce strategy could become the disruptor of this decade. We are thrilled to have been invited to partner with Reliance in their mission for Indian Retail,” Durban said.

The transaction is subject to regulatory and other customary approvals. Morgan Stanley acted as financial advisor to Reliance Retail and Cyril Amarchand Mangaldas and Davis Polk & Wardwell acted as legal counsel. Latham & Watkins and Shardul Amarchand Mangaldas & Co acted as legal counsel for Silver Lake.

On Tuesday agencies including Goldman Sachs, Fitch Ratings and India Ratings downgraded their growth estimates, now expecting GDP to contract in the double-digits. 

NEW DELHI:  After India’s worse-than-expected GDP performance in the first quarter—tanking by 23.9 per cent—global ratings agencies have revised their forecasts for the current fiscal year.

On Tuesday agencies including Goldman Sachs, Fitch Ratings and India Ratings downgraded their growth estimates, now expecting GDP to contract in the double-digits. 

Investment bank Goldman Sachs said it expects Indian economy to undergo a deeper recession in FY21 with a contraction of 14.8 per cent, worse than its earlier estimate of 11.8 per cent.

“We now forecast Q3 2020, and Q4 2020 at GDP growth of -13.7 per cent yoy and -9.8 per cent yoy, respectively. Our estimates imply that real GDP falls by 11.1 per cent in calendar year 2020, and by 14.8 per cent in FY21,” the investment bank said in a research note.

However, Goldman Sachs added that it expects a bounce back next year in the June quarter due to favorable base effects.

Fitch Ratings too lowered its forecast for the current fiscal 2020-21, expecting GDP to contract by 10.5 per cent against its earlier estimate of contraction of 5 per cent.

“The severe fall in activity has damaged household and corporate incomes and balance sheets, amid limited fiscal support. A looming deterioration in asset quality in the financial sector will hold back credit provision amid weak bank capital buffers. Furthermore, high inflation has added strains to household income,” Fitch said.

Other forecasters such as Nomura, India Ratings, HSBC have also lowered India’s growth projection.
India Ratings, the Indian subsidiary of Fitch, predicts a sharper fall of 11.8 per cent in India’s real GDP and says recovery will be visible only by third quarter of FY 22.

“Only in the third quarter of FY22, will India’s nominal GDP be bigger than that in Q4 FY20—a loss of nearly two years,” said Devendra Pant, chief economist at India Ratings.

He added that the loss of a tenth in the nominal GDP will result in poor revenue collections, and considerably enlarge the fiscal deficit, which the agency pegs at 8.2 percent of GDP for FY 21. 

Other major ratings agencies have also revised India’s growth forecast downward. Nomura now expects India’s GDP to contract by 9.0 per cent YoY in 2020 against it’s early prediction of 5 per cent, and by 10.8 per cent in FY21 against the earlier forecast of 6.1 per cent.

‘The brand integration not only marks the completion of the largest telecom merger in the world, but will also set the company on its future journey,’ said CEO Takkar.

VIL, which had about 280 million subscribers as of June, said that Vodafone and Idea brands will now be called ‘Vi’.

“A brand with its eyes set on the future, it is built for and around customers. The integration of two brands is a culmination of the largest telecom integration in the world,” VIL said in a statement communicating its new unified consumer brand identity and positioning through a virtual launch on Monday.

Elaborating on the new brand, Ravinder Takkar, MD and CEO, Vodafone Idea said, “Vodafone Idea came together as a merged entity two years ago. We have, since then focussed on integrating two large networks, our people and processes.”

The brand integration not only marks the completion of the largest telecom merger in the world, but will also set the company on its future journey to offer strong digital experiences to 1 billion Indians on its 4G network, he said.

“VIL is now leaner and agile, and the deployment of many principles of 5G architecture has helped us transform into a future-fit, digital network for the changing customer needs.”

“The new brand launch signifies our desire to not just deliver, but delight our customers, stakeholders, communities and our employees and signals our passion and commitment to be a Champion for Digital India,” Takkar added.

The announcement comes close on heels of Vodafone Idea board, last week, approving fund-raising plans of up to Rs 25,000 crore through a combination of equity and debt instruments, to keep the company afloat.

The upcoming fundraising will offer a lifeline to cash-strapped VIL, which has suffered massive losses, has been losing subscribers and Average Revenue Per User (ARPU), and faces outstanding Adjusted Gross revenue (AGR) dues of about Rs 50,000 crore.

In the recent past there have been reports suggesting that Verizon and Amazon may invest over USD 4 billion into the company, although Vodafone Idea itself clarified last week that while it constantly evaluates various opportunities as part of corporate strategy, there is no such proposal currently before the Board.

Earlier this month, the Supreme Court directed telecom operators to pay 10 per cent of total AGR-related dues this year, and rest of the payments in 10 instalments starting from next fiscal year.

Fund infusion is critical for cash-strapped VIL, the third largest operator in the fiercely-competitive Indian telecom market where Jio’s entry in 2016, with free calls and cheap data pushed some rivals to exit, acquire, or merge to stay afloat.

Jio Platforms — the unit that houses India’s youngest but largest telecom firm Jio and apps — recently secured Rs 1,52,056 crore from 13 investors including Facebook, Google, General Atlantic, Intel Capital and Qualcomm Ventures.

Notably, Vodafone Idea’s overall AGR dues stood at over Rs 58,000 crore, of which the company has paid Rs 7,854 crore to the Department of Telecom so far.

The statutory dues arose after the Supreme Court, in October last year, upheld the government’s position on including revenue from non-core businesses in calculating the annual AGR of telecom companies, a share of which is paid as licence and spectrum fee to the exchequer.

VIL has been under severe financial pressure, and analysts had earlier cautioned that the company’s longer-term viability was under cloud.

In December, Vodafone Idea Chairman Kumar Mangalam Birla had said VIL may have to shut if there is no relief on statutory dues.

The company had reported a staggering Rs 73,878 crore of net loss for fiscal ended March 2020 – the highest ever by any Indian firm – after it provisioned for Supreme Court mandated statutory dues.

It reported net loss to Rs 25,460 crore for the June quarter after making additional provisions to pay past statutory dues, and had, at that point, said its ability to continue as going concern hinges on the Supreme Court allowing more time to pay dues.

The apex court has rejected the demand for a 20-year time for telcos to clear a combined Rs 1.

6 lakh crore in past dues, but allowed the liability to be cleared in 10 years.

Besides payment of AGR dues, VIL’s fund-raising will be important given that 5G is on the horizon, and industry will require the firepower for making substantial investments into bidding for spectrum and network rollout.