BREAKINGVIEWS-Ambani backers face longer wait for so-so returns

By Shritama Bose

MUMBAI, May 12 (Reuters Breakingviews) - Jio Platforms owns a data network boasting India's quickest downloads, but its investors aren't feeling the benefits of speed. The telecom and digital unit of tycoon Mukesh Ambani's Reliance Industries RELI.NS will only sell new shares in an initial public offering, the Economic Times reported on Monday, citing unnamed people involved in the process. KKR KKR.N, Meta Platforms META.O and other existing investors may be holding on to their stakes in the hope of higher returns, but the delay will come at a cost.

The offering is a departure from an earlier plan: shareholders, among them Vista Equity Partners, Saudi Arabia's Public Investment Fund and Abu Dhabi Investment Authority, were to sell 8% of their stakes in the IPO, per a Reuters report from March citing unnamed sources.

Now these global investors, who own 33% of Jio, will be waiting even longer to exit their position. The change may have been prompted by Reliance's keenness to prioritise leaving value on the table for mom-and-pop investors who subscribe to the IPO. It means the company is unlikely to aim for a more ambitious valuation of up to $180 billion estimated by analysts.

Assuming a price tag of $140 billion, roughly 13.4 trillion rupees, for Jio would imply an annualised return in local currency terms of roughly 18% over its 2020 equity valuation of 4.9 trillion rupees, and less in U.S. dollar terms. Anything below 20% would be considered sub-optimal for private equity backers like KKR, Silver Lake and General Atlantic.

It may be reasonable for them to stick around for longer to maximise gains from rising earnings in a business that's growing the top line at nearly 15%, twice the pace of the country's GDP. Its net income is likely to expand too, by 25% for the year to March 2027, according to estimates compiled by Visible Alpha.

Pricing dynamics may also turn more favourable once fighting in the Middle East ceases to weigh on Indian equities. Selling the minimum mandated 2.5% stake in a company valued at $140 billion would send Jio's bankers including Kotak and Morgan Stanley in search of buyers for $3.5 billion of stock, ranking amongst the biggest-ever Indian IPOs, at a time global sentiment towards the emerging market is exceptionally weak.

Yet waiting would mean passing up a chance to reduce an overhang on Jio's shares created by the expectation that its financial investors will eventually look for buyers. Ambani appears determined to avoid any further delays to listing the business. For Jio's current backers, the bar for a meaningful payoff is rising.

Follow Shritama Bose on LinkedIn and X.

CONTEXT NEWS

Reliance Industries is reworking the listing structure for its telecom and digital unit Jio Platforms, the Economic Times reported on May 11, citing three unnamed people involved in the process. The Indian group is now working towards an initial public offering only of new shares in Jio, as opposed to the previous plan of existing investors selling some of their stakes. A disagreement over pricing drove the change, the report added.