Mukesh Ambani's journey from debt to digital titan

The rise and rise of Jio brand

Debt. It can be a bridge to a company's future prosperity, or a massive weight that creates a drag on progress. High levels of debt can eventually pave the way for asset sales to outside investors.

For India's billionaire oil and gas tycoon Mukesh Ambani, debt has mounted in recent years to fuel a headlong expansion of his company, Reliance Industries. Reliance's empire includes Jio Platforms, the Mumbai-based mobile and telecom network that has sprinted its way to grabbing $10 billion over just the past two months by top foreign tech investors including KKR, Silver Lake, Vista Equity Partners and even Facebook.

To be sure, those deals represent big bets on Ambani's ambitions for Jio to lead India's rise to a world digital powerhouse. But in an era when oil and gas prices have cratered, those investments also speak to Reliance's ongoing effort to reduce its massive debt, which the company aims to bring to zero over the coming year.

The flock of investors circling Jio is just one of six things you need to know from the past week.

Mukesh Ambani, chairman and managing director of Reliance Industries, at the TIME 100 Gala. (Larry Busacca/Getty Images)

These days, it seems, barely a day goes by without a whisper of yet another mega-investment in Jio, now valued at $65 billion, according to an estimate. And this past week was no exception. Mint, an Indian business news outlet, reported that Microsoft is in talks to take a stake of more than 2.5% in Jio for up to $2 billion. Both sides have been mum on the report. Microsoft struck a 10-year cloud-services partnership with Jio last year. Other potential investors negotiating for a piece of Jio include Twitter and Abu Dhabi sovereign fund Mubadala, Reuters reported.

What exactly is Jio, which was founded less than 10 years ago, and why has it won over fans including KKR's Henry Kravis, Facebook's Mark Zuckerberg and Microsoft's Satya Nadella? There is a reason these tech investors made such big bets and why they did so at this moment.

You could say there are 1.3 billion reasons. That is how many people in India figure to join the nation's fast-emerging digital economy as companies like Jio aggressively build out the connected ecosystem. Following years of declining energy prices, Ambani made the audacious but shrewd decision to play a starring role in India's digital transformation. He has done so by squeezing credit out of the vast oil and gas assets that made Reliance the country's biggest company and Ambani Asia's richest man, according to Forbes.

Ambani's gambit comes as Reliance is getting less, well reliant, on energy as the source of its fortunes.

Oil prices are depressed and digital is the future. In fiscal year 2019, oil and chemicals led the way, making up 42% of Reliance's revenue, with digital at 17%, according to Q4 financial results issued in April. A year later, the oil side shrank and overall business was 33% energy vs. more than 24% digital, which now encompasses an ecosystem of telecom networks, cloud computing and a mobile carrier for more than 388 million subscribers.

Against this backdrop, PE and buyout firms sped up their evolution into global tech investors. PE fundraising for this strategy has surged to record levels, and tech-focused PE fund returns have outperformed other industry funds, according to a report last fall. Facebook, for its part, has upped the ante by investing $5.7 billion for a 10% stake in Jio.

Ambani has shifted the company's financing equation of late to emphasize more equity, rather than leverage, smoothing out the balance sheet. And this could pave the way for an IPO of the Jio unit, which Reliance is considering for some time over the next 12 to 24 months, Bloomberg reported.

Signs of this change appeared even before Jio's May fundraising bonanza.

The parent company's total debt-to-equity ratio stood at 0.61 last fall, down from 0.75 a year earlier. Reliance had begun chipping away at its debt load, which weighed in at more than $35 billion last fall, down from over $41 billion in early 2019. The company has maintained a BBB+ Standard & Poor's credit rating, according to its latest financial report, putting it near the high end of the debt-rating spectrum but still not exactly sterling.

Jio has plainly stated it's determined to lead a tech transformation of its parent company and the rest of the Indian nation itself. It is well on its way, already a fast-growing tech titan in its own right. If Jio's flurry of fundraising is any sign of things to come, we could soon witness the birth of a new global tech superpower.

Alexander Davis is the executive editor of PitchBook News. Previously, he was an editor at The Wall Street Journal and was a founding editor of MarketWatch.