How the RIL-Jio Financial Services demerger will take place – explained
While delivering its September quarter earnings last year, RIL announced the demerger of its financial services business and list it separately on the stock exchanges under Jio Financial Services Ltd. The Mumbai bench of the National Company Law Tribunal (NCLT) in its order on June 28 June (uploaded on the website of NCLT on July 5) approved the demerger.
In May, shareholders and creditors approved the spinoff of Reliance Strategic Investments Ltd, which will be renamed Jio Financial Services.
The ratio for demerger is set at 1:1. This means for each share of RIL held before the record date on July 20, the company will award one share of JFSL. JFSL is expected to get listed in the next two-three months.
Experts pointed out that Jio Financial Services will hold 413 million treasury shares of RIL, accounting for approximately 6.1 per cent of RIL’s total outstanding shares. This means JFSL will own a 6.1 per cent stake in RIL.
When Jio Financial is separated from Reliance Industries, the share price of Reliance Industries will need to be adjusted. The adjustment will depend on the value given to Jio Financial Services.
What will happen on Thursday, July 20?
BSE and NSE will conduct a special pre-open session on July 20 for RIL to discover its price after the demerger. The previous session’s closing price of RIL will be the reference price for this session.
Let’s suppose, RIL’s closing price is ₹3,000 on Wednesday (July 19) and it settles at ₹2,800 after the special pre-open session on July 20, the share price of Jio Financial Services would be ₹200 (3,000-2,800).
As Mint reported earlier, after the demerger, Jio Financial will be temporarily added to Nifty50 along with 18 other indices of NSE, including Nifty 100, Nifty 200, Nifty 500, Nifty Energy, and Nifty Oil & Gas without replacing any stocks. This inclusion is due to the change in the index methodology regulations laid out by the exchange when considering mergers and demergers in index constituents.
Jio Financial will be added to 18 of the S&P BSE indices also, including the S&P BSE Sensex, starting July 20 for a period of three days. After three days, it will be dropped from all the indices at the last traded price.
Meanwhile, as per experts, all futures & options (F&O) contracts of RIL will expire a day before the record date of the demerger.
JFSL valuations expectations
Rajesh Sinha, Sr. Research Analyst at Bonanza Portfolio pointed out that JFSL owns 6.1 per cent in RIL, which is valued at ₹1.1 lakh crore.
“This would represent a substantial portion (nearly 90 per cent) of JFSL’s net worth. Excluding investments in RIL shares, JFS’s net worth would be around ₹10,000 crore. As per street estimates, JFSL will list at a price of ₹150-190 per equity share,” said Sinha.
Long-term impact on RIL
Brokerage firms believe the demerger has the potential of unlocking significant value for RIL and its shareholders. It could give a boost to the stock price by 3-5 per cent.
Brokerage firm Nuvama Wealth Management believes the de-merger of RIL’s financial services is value unlocking, similar to what happened back in 2005 when RIL demerged four entities. The brokerage firm has a buy call on RIL stock with a target price of ₹3,205.
Brokerage firm Axis Securities, too, recommended investors buy Reliance Industries shares before the record date of July 20, 2023, as the brokerage firm believes it to be a more economical way to buy Jio Financial Services which is likely to list at ₹160 (one-time RIL’s treasury stock value).
Read more: Jio Financial Services demerger: RIL share price may see a 3-5% upside, say experts
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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Updated: 18 Jul 2023, 06:11 PM IST
