Nearly 10 months back, the largest conglomerate in the country announced that it would demerge its financial services business into Reliance Strategic Investments Ltd (RSIL), later to be rechristened into Jio Financial Services Ltd (JFSL). The National Company Law Tribunal (NCLT) approved the scheme of arrangement on 6th July.
NSE conducted a special pre-opening on 20th July, from 9 a.m. to 10 a.m., to discover the share price of RIL (excluding the JFSL), which came at Rs. 2,580 per share. The JFSL price post this auction was valued at Rs. 261.8 per share. The demerged entity is yet to be listed; however, experts believe it could be anywhere between 30-45 days.
Here’s important news for investors – The demerger ratio is 1:1. So, say if you held two shares of RIL on 20th July, you would be entitled to two shares of JFSL!
Many whys, whats, and hows may be running through your mind! But, worry not as we decode this demerger and its future implications on Reliance and the markets.
Reliance sets July 20 as the record date for share allotment in the demerger process
As mentioned above, the NSE conducted a special pre-open session for Reliance Industries’ stock on 20th July in line with the demerger process. The Nifty 50 index level was calculated based on 49 stocks during this session, the previous day’s closing price of RIL, and a zero value for Jio Financial Services.
This was done in line with the new rules set by the NSE regarding mergers and demergers, which stated that if a demerger occurs, the demerged company will be temporarily added to the index, provided a special pre-open session is held for the demerging stock.
So, what does this scheme of arrangement, in regards to Reliance, say about the share allotment? According to the terms of the scheme, Reliance will issue and allot one fully paid-up equity share of RSIL with a face value of Rs 10 for every fully paid-up equity share of Rs 10 of RIL. The equity share will be allotted to shareholders whose names are recorded on the register of members and/or records of the depository on the record date.
What does the demerger mean for shareholders and competitors?
The strategic demerger has caused concerns among shareholders and competitors.
As the company already has access to a large customer base, a fierce rivalry is been expected amongst existing financial intermediaries. This can be good news for consumers!
Reliance is expected to benefit from the existing 400 million Jio Telecom users, thousands of Reliance Retail stores, and 2 million merchants onboarded on the JioMart grocery platform once Jio Financial is listed separately. Now, it is to be remembered that most finservs borrow money to serve their cause, naturally increasing their debt levels. Reliance’s financial services arm drawing more debt could alarm investors. So, by demerging, Reliance hits 2 birds with one stone – First, it can reduce its debt levels (technically, because JFSL will be a separate entity) and second, attract investors who only want to invest in financial services and not be part of the oil and gas industry or vice versa!
Most experts believe that Reliance has the potential to surpass Bajaj Finance’s lending credit worth Rs 2.2 trillion and enter into asset management, wealth management, and broking. Reliance has all the requisite building blocks to be competitive, including a top-notch AAA credit rating, which only five other large NBFCs possess. Even without much a do, JFSL already has a market cap of Rs. 1 lakh crores (As JFSL will own 6% of RIL shares), making it the 5th largest NBFC (in terms of net worth).
Dalal Street is hot with Reliance’s demerger and the soon listing of Jio Financial Services. Many believe that Mukesh Ambani will manage to recreate the magic of Jio in the financial services sector too. Reliance’s competitors may need to keep a close eye on every step JFSL takes to remain relevant in the game. Or, it might be Jio’s monopoly again, all the way…