Facebook deal to help Reliance monetise platforms, deleverage: Fitch

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Facebook Inc's USD 5.7 billion investment in Jio Platforms, subsidiary of Reliance Industries Ltd (RIL), will help to monetise the digital platforms of both companies and aid in deleveraging of RIL's balance sheet, Fitch Ratings said on Thursday. Facebook's investment for a 9.99 per cent stake in Jio Platforms is the single-largest FDI in the Indian telecoms and technology sector.

Reliance Jio, the wireless market leader with around 390 million subscribers, is a subsidiary of Jio Platforms.At the same time, Reliance Retail, RIL's retail arm, has also partnered with Facebook's WhatsApp to allow RIL's e-commerce business users to use the WhatsApp platform.

Fitch said it had in August last year revised the outlook on RIL's 'BBB' rating to 'positive' and may upgrade to 'BBB+' if "net adjusted debt/EBITDA ratio improves to below 1.5x on a sustained basis".

"The deal is part of RIL's plan to strengthen its businesses and to achieve a net cash position - through partnerships and supported by organic growth and lowcapex," Fitch said in a statement.

"We expect the partnership with Facebook to bolster RIL's consumer business in the medium term."

The rating agency said the proceeds from the transaction should help RIL maintain the pace of its deleveraging - counteracting the likely weakness in its refining and petrochemical segment during 2020-21.

Fitch expects RIL's oil-to-chemical segment to face volume and margins headwinds due to the impact of the COVID-19 pandemic in line with the industry trend.

"We expect the pandemic to weaken demand for refined products and petrochemicals in Asia-Pacific during 2020, with a gradual recovery through 2021 to pre-COVID-19 levels. However, RIL should be less affected than peers, due to the high complexity of its refineries and integrated petrochemical operations with feedstock flexibility," it said.

The deal, it said, will allow both Facebook and Jio to monetise their digital platforms, engage customers online, and provide direct connectivity between users and merchants.

Usage of digital platforms is likely to grow significantly in the medium-term amid severe disruptions caused by lockdowns and social distancing measures.

Increasing reliance on digital platforms might also assist RIL in gaining market share in India's growing e-commerce segment, and soften the impact of lower footfalls in its physical retail stores.

"Jiomart, which is a market-place platform and built in partnership with small merchants and 'kirana' (small neighbourhood retail store) shops, will allow users to buy goods and services using WhatsApp and Facebook Messenger. Jio Platforms will focus on introducing digital solutions for 60 million micro, small and medium businesses; 120 million farmers; 30 million merchants; and millions of SMEs in the informal sector," Fitch said.

On its part, Facebook is likely to be able to expand its platforms - including Facebook Marketplace, Instagram Shopping and Facebook Pay - to help SMEs set up virtual shops on such platforms and sell goods and services.

Facebook plans to roll out WhatsApp Payments in India and other countries this year, after having tested this with a million people in India in 2018.

WhatsApp Platform, which has started charging businesses, is still offered free to retail users globally, it said.

Facebook reported 641 million daily active users (DAU) in APAC in 4Q19, up by 14 per cent year-on-year and now contributing around 39 per cent of overall 1.
7 million DAUs.

India is the single-largest market with about 330 million monthly users, and also one of the fastest-growing markets for Facebook.

WhatsApp's messaging app also has the largest user base in India, with about 400 million users.

"We believe internet users in the country will rise to at least 800 million by 2022, up from around 600 million in 2019 as India overtook the US to become the world's second-largest smartphone market after China by unit shipments in 2019. DAUs represented around 66 per cent of 2.5 billion monthly active users in December 2019," Fitch added.

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