Reliance Industries Ltd., owned by Indian billionaire Mukesh Ambani, is offering to sell an approximately $ 20 billion stake in its retail business to Amazon.com Inc., according to a person with knowledge of the matter.
Amazon has held investment talks in the conglomerate’s Reliance Retail Ventures Ltd. unit and has expressed interest in negotiating a potential transaction, the person said. Mumbai-based Reliance Industries is willing to sell up to a 40% stake in the subsidiary to Amazon, said the person, who asked not to be identified because the information is private.
A deal, if successful, would not only create a retail giant in India, it would also turn Jeff Bezos and Asia’s richest man from rivals into allies in one of the fastest growing consumer markets in the world. At $ 20 billion, the deal would be the largest ever made in India and for Amazon, according to data compiled by Bloomberg.
Reliance Industries shares hit an all-time high after the Bloomberg News history. The stock rose as much as 8.5% during trading in Mumbai. It was the biggest winner of the day on the benchmark S&P BSE Sensex index, which advanced 1.8% intraday on Wednesday.
The Indian rupee rose as much as 0.5% to 73.1588 per dollar on expectations of more capital inflows.
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In India, where many people still shop at small corner stores, the deal could be Amazon’s way of acknowledging that it needs a locally rooted partner with a strong presence on the ground. For Amazon, Reliance would provide a physical component to its ambitions in a country where online shopping still represents a miniscule share of an estimated $ 1 trillion retail market.
Highly complementary
“The agreement would be very complementary that builds on the strengths of both parties,” said Utkarsh Sinha, managing director of Bexley Advisors in Mumbai. “Amazon comes with the power of its warehousing capabilities and the ability to optimize supply chains and sweat assets for maximum profitability.”
Amazon has not made a final decision on the size of its potential investment and the talks could still flounder, the person said. An Amazon representative declined to comment.
“As a policy, we do not comment on speculation and media rumors,” a Reliance spokesperson said in an emailed response to Bloomberg News. “Our company evaluates various opportunities on an ongoing basis. We have made and will continue to make the necessary disclosures in compliance with our obligations. “
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Any deal between the two would also reinforce the partnership that was indirectly forged last month through an unrelated purchase by the Ambani group when it bought assets from its indebted rival Future Group. Amazon had invested in one of Future’s unlisted firms last year and then expanded the alliance.
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Such investment on Amazon’s part also means the titan is altering its playbook after learning from past failures in the region. Previously, the online giant’s strategy of going solo in China failed in the face of competition from domestic giants such as Alibaba Group Holding Ltd. and JD.com Inc.
For Reliance, the deal will give more credence to Ambani’s ambitions to create an e-commerce giant for India similar to Alibaba Group. Reliance Retail has already attracted about $ 1 billion from Silver Lake Partners, in a deal that valued the company at about $ 57 billion.
US private equity firm KKR & Co. is in advanced talks to invest at least $ 1 billion, and L Catterton is also considering investing. Bloomberg News reported Wednesday.
Ambani’s investment in retail companies comes after he raised $ 20 billion from selling stakes in his tech company, Jio Platforms Ltd., to investors such as Facebook Inc. and Google.
The 63-year-old mogul, who has added $ 24 billion to his personal wealth this year, told shareholders in July that the retail unit would be next on the list of investors.
Reliance Retail, a unit of telecommunications energy conglomerate Reliance Industries, runs supermarkets, India’s largest chain of consumer electronics stores, a cash and carry wholesaler, fast fashion stores and an online grocery store called JioMart. It reported 1.63 trillion rupees ($ 22 billion) in revenue in the year to March 2020. The unit operates nearly 12,000 stores in nearly 7,000 cities.
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Turn away
For the Indian business mogul, who has identified technology and retail as areas for future growth, the investments would further help drive the group away from the energy business he inherited from his father, who died in 2002.
While Ambani is interested in selling stakes to top foreign investors, it is actively acquiring local retail assets to strengthen its leadership position.
In addition to the Future Group purchase, Reliance is in negotiations to acquire smaller firms such as Urban Ladder, an online furniture seller and Zivame, a lingerie maker, people familiar with the matter said last month.
However, an outdated gamble for Amazon may need to overcome antitrust hurdles. A collaboration between the world’s largest online retailer with a strong presence in India and the country’s leading offline retailer could lead to market concentration risks that could invite regulatory scrutiny.
Bexley’s Sinha also warned of “possible unintended consequences” if the transaction is successful. “It is not inconceivable that this would prevent any other entity from gaining scale in the Indian retail space,” she said.
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