Facebook Fears India’s Regulatory Backlash In $5.7 Bn Reliance Jio Deal

Before finalising the transaction in its $5.7 Bn investment in Reliance Jio Platforms, social media giant Facebook is reportedly seeking legal advice on India’s foreign direct investment (FDI) policy towards neighbouring countries, particularly China and Hong Kong, to ensure there are no issues in closing the deal.

Even though Facebook is headquartered in the United States, it has several stakeholders based in China and Hong Kong as it is a public company. The company has shareholders, including hedge funds and financial institutions, in both Hong Kong and mainland China.

According to a Business Standard report citing sources, Facebook is consulting the Big Four consultancy firms —  PriceWaterhouseCoopers (PwC), Ernst & Young (E&Y), Deloitte, and KPMG — to advise it on the new “beneficial ownership” norms that would apply to the proposed investment in Jio.

In April 2020, the Indian government revised the foreign direct investment (FDI) guidelines in order to protect Indian companies from “opportunistic acquisitions” by investors, mainly from China. All investments will have to go through the government route and not automatic approval.

As per the new guidelines, the Indian government has installed a screening process for all investments coming in from countries sharing land borders with India. This would include all investment activities from China, Pakistan, Nepal, Bangladesh and Myanmar. The new rules will also be applicable to ‘the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly.

Sources told Business Standard that the onus of approval falls on the investors and not the companies they are investing in. In case the new FDI policy applies to indirect investments from China, Facebook would require approval from the concerned ministries in India. As noted in Inc42’s coverage of India’s FDI firewall, the policy is ambiguous, particularly with regards to treating indirect investments.

While Facebook is clearing out its path for the potential FDI approval need, the competition commission of India (CCI) will be scrutinising the Reliance Jio Platforms and Facebook deal.

CCI Chairman Ashok Kumar Gupta, in an email interview with Bloomberg, noted that the competition watchdog is looking to prevent the misuse of data in all the deals it assesses, and has also been devising new parameters that should be included in its assessment criteria. He declined to further comment on the Jio-Facebook deal pending examination.

Reliance’s Jio Platform has raised INR 1.15 Lakh Cr from global investors like Facebook, Silver Lake, Vista Equity Partners, General Atlantic, KKR, Mubadala, Abu Dhabi Investment Authority (ADIA), TPG, Public Investment Firm (PIF) and L Catterton in 58 days.