KEY POINTS

  • Reliance Retail operates almost 12,000 stores across many businesses
  • For Ambani, the sale would help him to establish an e-commerce behemoth in India
  • India’s retail market is projected to reach $1.3 trillion in size by 2025

Indian conglomerate Reliance Industries Ltd. has denied reports that it offered to sell a $20 billion stake in its retail arm to Amazon (AMZN).

"It makes no sense for both the parties to establish partnerships or collaborations," a source told Agence France Presse.

Earlier on Thursday, Bloomberg reported that Amazon has been holding talks with Reliance about investing in its Reliance Retail Ventures Ltd. subsidiary.

Reliance Industries is controlled by Asia’s wealthiest man, Mukesh Ambani. It is looking to sell up to a 40% stake in the subsidiary to Amazon, Bloomberg noted.

The unit in question, Reliance Retail, operates almost 12,000 stores across many business lines, including supermarkets, a consumer electronics chain store, a cash and carry wholesaler, fashion outlets and an online grocery retailer. The unit reported revenues of about $22 billion in the year ended March 2020.

Should the transaction ever happen it would convert Ambani and Amazon boss Jeff Bezos into allies rather than rivals in the huge Indian retail market.

For Ambani, such a sale – if it were to occur – would help him to establish an e-commerce behemoth in India.

“The deal would be a highly complementary one that builds on the strengths of either side,” said Utkarsh Sinha, managing director at Bexley Advisors in Mumbai. “Amazon comes with the might of its warehousing capabilities and the ability to streamline supply chains and [cut costs] for maximum returns.”

However, any such megadeal would likely face regulatory obstacles and might be viewed as anti-competitive.

Sinha of Bexley said if the transaction occurs, “it is not inconceivable that this [would stifle] any other entity from gaining scale in Indian retail space.”

Yusuf Unjhawala, editor of the Indian Defence Forum, said of the potential deal in a tweet: “What a coup this would be. From setting up for competition to collaborating. But I hope the deal doesn’t happen. Reliance [and] Amazon competing will be better for consumers.”

Abishur Prakash is a geopolitical futurist at the Center for Innovating the Future, a strategy consulting firm based in Toronto.  He told International Business Times that – hypothetically, should it happen – the deal would be a “win-win” for both sides, at least in the short term.

“Amazon gets access to Reliance’s brick-and- mortar stores, giving it a new way to sell to Indian consumers,” he said. “And, Reliance gets a massive cash injection, giving it new liquidity. And, there may be tie-ups around future Amazon ventures, for instance, Amazon Pharmacy. Or, Reliance might use the partnership to enter the U.S. market.”

Prakash added that there’s also the geopolitical element to the deal, citing that Reliance Industries is becoming like the Indian version of Chinese conglomerate Tencent Holdings.

“[Reliance is] creating an entire ecosystem of services,” he said. “And, at a time when India faces off with China, the U.S. and India are becoming closer than ever - starting with [their] businesses.”

Reliance Retail has already received a $1 billion investment from U.S. private equity firm Silver Lake Partners. Another private equity firm KKR & Co. is in talks to invest at least $1 billion, while yet another private equity player L. Catterton is also considering making an investment.

Ambani’s vast business empire has recently received big investments from deep-pocketed western investors. He raised $20 billion by selling off stakes in his digital services unit Jio Platforms to Facebook (FB) and Alphabet unit Google (GOOG), among others.

India’s retail market is projected to reach $1.3 trillion in size by 2025 – up from $700 billion in 2019. Since Amazon first entered India in 2013, it has invested over $5 billion in its business there.