Jio Platforms Gets 5th Investor, KKR to Buy 2.32% stake for Rs11,367 crore
US private equity fund KKR became the fifth big investor to buy stake in Jio Platforms Ltd, a unit of Reliance Industries Ltd (RIL). This Rs11367 crore investment is KKR's largest in Asia and will translate into a 2.32% stake in Jio Platforms on a fully diluted basis.
 
Over the last month, leading technology investors, such as, Facebook, Silver Lake, Vista, General Atlantic and KKR have announced aggregate investments of Rs78,562 crore into Jio Platforms.
 
Mukesh Ambani, chairman and managing director of Reliance Industries, said: "I am delighted to welcome KKR, one of the world's most respected financial investors, as a valued partner in our onward march to growing and transforming the Indian digital ecosystem for the benefit of all Indians. We are looking forward to leveraging KKR's global platform, industry knowledge and operational expertise to further grow Jio."
 
According to Henry Kravis, co-founder and Co-chief executive of KKR few companies have the potential to transform a country's digital ecosystem in the way that Jio Platforms is doing in India, and potentially worldwide. "We are investing behind Jio Platforms' impressive momentum, world-class innovation and strong leadership team, and we view this landmark investment as a strong indicator of KKR's commitment to supporting leading technology companies in India and Asia Pacific," he says.
 
Jio Platforms, a wholly-owned subsidiary of Reliance Industries, is a next-generation technology platform focused on providing high-quality and affordable digital services across India, with more than 388 million subscribers. 
 
Jio Platforms has made significant investments across its digital ecosystem, powered by leading technologies spanning broadband connectivity, smart devices, cloud and edge computing, big data analytics, artificial intelligence, Internet of Things, augmented and mixed reality and blockchain.
 
Founded in 1976, KKR has a long history of building leading global enterprises and successfully investing in businesses in the technology sector, including BMC Software, ByteDance and GoJek through its private equity and technology growth funds.
 
Since inception, KKR has invested over $30 billion (total enterprise value) in tech companies, and today the firm's technology portfolio has more than 20 companies across the Technology, Media and Telecom sectors. In addition, India has been a key strategic market for KKR with a history of investing in the country since 2006.
 
KKR is making the investment from its Asia private equity and growth technology funds. The transaction is subject to regulatory and other customary approvals.
 
Earlier this week equity firm General Atlantic had bought 1.34% stake in Jio Platforms for Rs6,598.38 crore (about $875 million). 
 
Earlier this month, investment firm Vista Equity Partners invested Rs11,367 crore for a 2.32% stake in Jio Platforms, the holding company of Reliance Jio Infocomm.
 
In April 2020, Facebook invested over Rs43,000 crore for a 9.99% stake in India's oil-retail-telecom conglomerate-led Jio Platforms -- the largest investment for a minority stake by a technology company anywhere in the world and the largest FDI in the Indian tech sector.
 
This was followed by US private equity firm Silver Lake, which invested Rs5,655 crore (nearly $750 million) for 1.15% stake into Jio platforms.
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    Aluminium Makers in Good Shape to Bear 4-Year Low Prices: CRISIL
    Fiscal 2021 has started on a jarring note for aluminium makers with the price of the metal plumbing four-year lows of $1,450 per tonne on the London Metal Exchange, and domestic demand evaporating because of the coronavirus (COVID-19) pandemic-driven lock-down. While that will squeeze bottom-lines this fiscal, efficient cost structure and adequate cash would buffer credit profiles and help Indian aluminium makers weather the viral disruption, says a research note from CRISIL.
     
    Rising exports, cost efficiencies and healthy cash buffers would support credit profiles for aluminium makers in India, the ratings agency says, adding, "The lockdown has not affected production because aluminium is an essential commodity. However, domestic demand – largely from the power transmission, automobiles and construction sectors – has plummeted. This domestic sales loss has been offset by companies adroitly exporting more, thanks to high cost-competitiveness that stems from improved sourcing and lower input costs." 
     
    According to CRISIL, over the past two fiscals, Indian producers have improved their bauxite access and coal linkage to about 70%. These two accounts for a significant portion of input cost. While bauxite security helps maintain higher operating rates and profits, it is the improved coal linkage and cheaper e-auctioned coal that are making the big difference now, it added.
     
     
    Manish Gupta, senior director of CRISIL Ratings says, “Linkage coal is 30-40% cheaper than imports and is seeing higher materialization due to lower industrial activity. On the other hand, e-auction coal has seen average premiums falling steadily from a high of 131% in December2018 to 36% as of March 2020. This has lowered the cost of electricity, which accounts for about 40% of the cost to produce aluminium.”
     
    That competitiveness, the ratings agency says, has helped smelters almost fully offset domestic volumes by exporting almost their entire production since the lockdown. 
     
    Aluminium exports had already risen over the past few years to more than 50% of production in fiscal 2020.
     
     
    With only a partial loss in revenue during the lockdown and continued cost efficiencies, CRISIL estimates that even at current realisations, companies will reel in operating profits of over $200 per tonne in fiscal 2021.
     
    According to Naveen Vaidyanathan, who is associate director of CRISIL Ratings current operating profitability of the industry would still be only 60% of the average per tonne profitability over the past five years. However, he says, "what cushions their credit profiles is the strong cash buffer, which is three times the debt obligations for this fiscal.”
     
    Domestic as well as global aluminium demand is expected to witness de-growth in fiscal 2021 amidst the Covid-19. However, with likely strong demand fundamentals, in the post-COVID19 era, global aluminium demand may grow about 3% annually, supported by increasing penetration in the automobile, construction and packaging industries, CRISIL says. 
     
     
    Domestic demand is presaged growing around 5%, owing to increasing penetration in the power transmission and automobile sectors and this bounce-back may see aluminium makers restore their financial metrics.
     
    "The key monitorables in the road ahead will be extent of lockdown and pace of economic recovery, which can curb demand for, and prices of, aluminium. That, in turn, would have a bearing on the credit profiles of producers," CRISIL concludes.
     
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    Can COVID-19 Lock-down Aid Structural Shift in Media & Entertainment Sector?
    Print media, broadcasters and movie exhibitors would be the most impacted by the coronavirus (COVID-19)-led lockdown. On the other hand, multiple system operators (MSOs), broadband players and electronic media may remain relatively resilient. Nevertheless, the pandemic and subsequent lockdown could expedite the longer-term structural shifts in the sector, aided by changing consumer preferences, says a research note.
     
    In the report India Ratings and Research (Ind-Ra) says, "Broadcasters and movie exhibitors will get impacted by the absence of fresh content and a weak outlook on advertisement revenue (ad-revenue). the penetration of over-the-top (OTT) platforms (against TV base) and digital platforms (against print media) to gradually rise, albeit not challenging the supremacy of traditional platforms such as TV and print media."
     
    Ind-Ra estimates that about 21% of traditional ad-revenue of TV, print, outdoor advertising comes from the high-risk sectors like automobiles, real estate and construction, travel and tourism and durable goods, with the exposure being highest for outdoor advertising (38%) and lowest for TV advertising (16%). Hence, it expects that recovery will be prolonged for them in FY21 even after the lockdown is lifted. 
     
    According to the ratings agency, the transition in consumer preferences to higher speed and higher download limit internet plans will be quick and would benefit broadband players. 
     
    Despite having near-term concerns on recovery, multiplexes are likely to benefit in long-term as they gain market share with the closure of financially unviable single screens. Ind-Ra has already opined that Telecom Regulatory Authority of India (TRAI)’s implementation of the new tariff order has significantly de-risked the business model of MSOs. 
     
    An analysis of sample set of Ind-Ra rated media and entertainment (M&E) players indicates that either they are not impacted by the current crisis or they have sufficient liquidity buffers available to weather this impact. However, the eventual impact on FY20-21 credit metrics would depend on the issuers’ ability to defer growth capex, ability to undertake cost control programs, pace of recovery in advertisement and subscription revenue and recovery pace for new content creation once the lockdown restrictions are lifted. 
     
     
    Ind-Ra says, for M&E players liquidity and interest coverage are comfortable, but their FY20-21 net leverage may increase. 
     
    In Ind-Ra’s M&E coverage (rated BBB- or above), spanning digital and print media, broadcasting, MSOs and movie exhibition sectors, median liquidity at 2.04 times for FY21 and gross interest coverage at 4.8 times for FY20-21 and 5.8 times for FY21-22 are comfortable. 
     
    "Both liquidity and interest coverage will also be supported by the regulatory debt moratorium package. Though median net leverage at 0.67 times for FY20-21 is also comfortable for now, it could come under pressure amid tough operating conditions for select sectors, especially if the lock-down extends beyond first quarter (1Q) of FY20-21," the ratings agency says. 
     
     
    Ind-Ra feels that the COVID-19 crisis has set in motion longer-term structural shifts in consumer preferences and demand. 
     
    With print media circulation suffering amid the lock-down, Ind-Ra believes some subscribers may shift permanently to digital media for content, which it says will negatively impact circulation revenues that are typically 30% of overall revenues. 
     
    It says, "A similar shift may be witnessed for TV audiences, given broadcasters are unable to telecast new content. Consequently, OTT platforms like Netflix, Amazon, Hotstar, and Voot, which till now have been limited primarily to the young urban population, could make inroads into new segments such as higher age-group audiences and audiences in tier-2 and tier-3 cities. Also, some small producers might be incentivised to consider releasing movies directly on OTT platforms, given that footfalls in multiplexes may take a long time to normalise."
     
    "Lastly, while movie exhibitors will suffer in the short term and the pace of recovery will be slowest for them, the crisis can lead to further consolidation in the sector, as single screens would close due to the financial stress and uncertainty and multiplexes would gain market share," Ind-Ra added. 
     
    According to the ratings agency, given the ongoing lock-down, new content creation has been put on hold resulting in broadcasters having to telecast old content. While this should not impact subscription revenues in the short-term barring some collection related issues, it says, the impact on advertisement revenues could be significant as recycled content fetches lower viewership and therefore advertisement rates. 
     
    Advertisement revenue, which is the major revenue contributor for broadcasters and print and digital media alike, is likely to get impacted substantially by being linked with economic cycles, Ind-Ra says.
     
     
    The impact on ad revenues can be broadly classified as lower overall ad volumes as companies curtail marketing spend amid lower profitability, pressure on ad rates given lower circulation, viewership and sluggish macroeconomic conditions, and shifting of ad revenues to web-based distribution channels such as YouTube, and OTT. 
     
    Ad-revenue on news channels however remains near normal, though it is significantly weaker for general entertainment categories (GEC). However, given that ad-rates on Hindi news channels are a fraction of GEC ad charges, news channels will only partly offset the revenue lost by GEC categories. 
     
    Overall, first half (1H) of FY20-21 will be tough for broadcasters, and 2HFY20-21 should be substantially stronger as new content creation resumes and economic activities normalise, the ratings agency says.
     
     
    Even after the lock-down ends, Ind-Ra says it expects footfalls in multiplexes and single screens to remain weak for much of 1HFY20-21, followed by a gradual recovery in 2HFY20-21. 
     
    "The key downside risks to this view come from the subsequent waves of COVID-19 outbreak or lock-down being extended. For now, movie exhibitors have reacted swiftly and declared force majeure – this has helped temporarily suspend rentals and lower the fixed cost base substantially. However, further clarity is needed if rentals will be revised lower, once the lock-down is lifted," the ratings agency added.
     
     
    The ratings agency does not foresee any major adverse impact on demand for cable and broadband services amid the ongoing crisis, though there could be some collection-related issues which will likely be resolved once the lock-down ends. 
     
    Ind-Ra says it expects overall demand for broadband and cable services to remain healthy given average revenue per user (ARPU) for cable and broadband remains low at Rs70 to Rs120 and Rs400 to Rs450, respectively. "Also, social distancing measures have given a fillip to people watching more TV and video on demand services and people working from home. This could even lead to viewers transitioning to higher speed and higher download limit plans which could be supportive of ARPUs," it added. 
     
    The ratings agency says it believes print media circulation has been impacted significantly and news-print sourcing could take some time to normalise. As such, it says, volatile news-print cost remains a key source of operating risk and additionally, some consumers may permanently shift to digital content, given the lack of access to print publications amid the lock-down. 
     
    "If the total advertising spend in print media in FY19-20, we estimate 25% is attributable to high risk sectors. However, the actual adverse impact on advertising spends might be sharply higher, because of limited circulation in 1HFY20-21," Ind-Ra concludes.
     
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