Silver Lake picks 1.75% stake in Reliance Retail for Rs 7,500 crore

US private equity firm Silver Lake Partners will buy 1.75 per cent stake in billionaire Mukesh Ambani-run Reliance Industries Ltd's retail arm for Rs 7,500 crore and may be followed by KKR & Co.

Silver Lake will invest Rs 7,500 crore in Reliance Retail Ventures Ltd, a subsidiary of Reliance Industries, for a 1.75 per cent stake, the Indian firm said in a statement.

"This investment values RRVL at a pre-money equity value of Rs 4.21 lakh crore," it said.

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

The world's largest tech investor picking up a stake in Reliance Retail cements belief that the firm is set to lead a disruptive, technology-led transformation of the Indian retail sector particularly relevant in post-pandemic India.

Reliance Retail Limited, a subsidiary of RRVL, operates India's largest, fastest-growing and most profitable retail business spanning supermarkets, consumer electronics chain stores, cash and carry wholesale business, fast-fashion outlets, and online grocery store JioMart. It operates almost 12,000 stores in nearly 7,000 towns.

The investment will add fire to Ambani's battle for dominance in the retail market that is also being eyed by Jeff Bezos' Amazon.com and Walmart Inc's Flipkart.

In May, Reliance launched an online grocery delivery service JioMart. It has tied up with WhatsApp to connect customers with local kirana stores.

After monetising Jio Platforms -- which houses the firm's telecom arm and digital ventures, the richest Indian Mukesh Ambani is roping in investors in the retail business.

All the 13 investors in Jio Platforms have been offered a chance to explore investing in the retail unit, sources privy to the development said adding KKR may be next in line to make an investment.

KKR may invest about USD 1.5 billion, they said.

Commenting on the Silver Lake deal, Sweta Patodia, Analyst, Corporate Finance, Moody's Investors Service, said, "the proposed divestment is credit positive as it will enable RIL to pursue further growth opportunities while maintaining its zero-net debt status. The deal also establishes a valuation for its retail arm and sets the stage for further stakes sales within the segment."

Global financial services major Credit Suisse said the induction of financial investors into the retail segment is earlier than expected as e-commerce operations in food and grocery started four to five months back and the extension of consumer electronics, apparel, and footwear is scheduled to commence in the current month.

Also, integration of the kirana network is still in a very early stage and synergies from recent acquisition of the retail business of Future group is yet to be realised, it said.

Late last month, Reliance acquired the retail and logistics businesses of Future Group for Rs 24,713 crore to boost its retail vertical.

In another report, Citi said with the capital raise cycle in Jio largely complete, the deleveraging target achieved well ahead of guided timelines, and the price discovery in retail also now done without any major upside surprise, the focus is now likely to shift to execution, especially on JioMart.

Also, the focus would be on the partnership with Google to develop an entry-level 4G smartphone which could help bring forward the target of 500 million mobile subscribers, it said.

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.

With this, Jio Platforms and Reliance Retail account for over Rs 9 lakh crore of RIL valuation.

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.

Silver Lake has a track record of investing in some of the largest and successful tech companies globally such as Twitter, Airbnb, Alibaba, Dell Technologies, ANT Financials, Twitter, Alphabet's Waymo and Verily amongst others.