Facebook has poked its head around the door of India's debt-ridden telecoms sector and is apparently looking for a way in.
According to a report from the UK's Financial Times (paywall applies), the social media giant was close to signing off on a "multibillion-dollar" deal that will see it secure a 10% stake in Reliance Jio, an aggressive newcomer that has shaken up India's old guard.
If the deal goes ahead, which could be delayed owing to India's COVID-19 lockdown measures, it will see Facebook command an even stronger digital presence in the country.
Through attractive pricing, Reliance Jio has emerged as the country's most popular mobile operator. In little more than three years, it has garnered some 370 million customers. Users of Facebook's WhatsApp chat services number 400 million.
Foreign direct Investment in India's telecoms market will always carry risk – just ask Vodafone – but the timing of Facebook's attempt to get some skin in the game doesn't look too bad (assuming COVID-19 dissipates).
After the Department of Telecommunications got its way in the long-running legal dispute with operators about how to define Adjusted Gross Revenue (AGR), Bharti Airtel and Vodafone Idea are in hock to the government for about $3.5 billion and $7 billion respectively in unpaid license fees and spectrum usage charges stretching back 16 years. Reliance Jio – a newbie by comparison – need only cough up a relatively small $26 million. (See India's top court deals yet another blow to its telcos.)
This is all good news for Facebook. Vodafone has made no secret that it might have to pull the plug on its Indian operation in the wake of the AGR ruling. That would leave Reliance Jio and Bharti Airtel with a duopoly. There's also talk that Reliance Jio might be the last nationwide operator standing if the government sits on its hands. (See India needs U-turn to prevent Jio monopoly.)
Another reason for Facebook optimism is that the number of Internet users in India, according to consultancy PwC, is expected to rise sharply, going from 450 million in 2017 to about 850 million in 2022.
It's a debt thing
Tycoon Mukesh Ambani, who owns Reliance Industries Limited (RIL) – the parent company of Reliance Jio – has the ambitious aim of making RIL a zero net debt company by March 2021. It's a tall order. As of September 30, 2019, RIL's outstanding debt was $41.2 billion.
Aside from wanting to raise money through selling a minority stake in Reliance Jio, which analysts at Bernstein value at more than $60 billion, RIL has been in talks to sell stake its petrochemicals business to Saudi Arabia's Aramco. It has already agreed to sell its retail petrol pump business to BP and will flog its telecom tower assets to Canada's Brookfield.
Google, according to unnamed sources, also explored buy-in opportunities at Reliance Jio before Facebook rolled up.
— Ken Wieland, contributing editor, special to Light Reading