Jio Financial Services Ltd. –
The fintech division of Reliance Industries is preparing to make its debut on the Indian stock exchanges on August 21st. Last year, the company’s board of directors approved a plan to reorganize the company’s structure, involving Reliance Industries Limited (RIL), Reliance Strategic Investments Ltd., and their respective shareholders and creditors. As part of this scheme, the financial services segment of RIL will be spun off into Reliance Strategic Investments.
During a special pre-open trading session conducted in preparation for the demerger, Jio Financial Services Ltd. was valued at Rs 261.85 per share. However, due to the pending transfer of shares to eligible RIL shareholders and awaiting approval from the exchanges, the stock of Jio Financial Services remained inactive in the benchmark indices Nifty 50 and BSE Sensex. In the meantime, Reliance Industries Limited continued to trade as usual in the regular market.
Jio Financial Services- Ownership Distribution, Magnitude, Overview –
Within the framework of the plan, Jio Financial Services is anticipated to replicate the ownership structure of RIL (Reliance Industries Limited); however, certain modifications will be necessary due to the presence of two trusts with holdings in RIL. The fresh entity will refrain from distributing its equity shares to the two entities which previously held RIL’s retained shares. These retained shares are maintained through a trust arrangement known as the Petroleum Trust, exclusively benefiting Reliance Industrial Investments and Holdings Ltd. This particular corporation is set to become a subsidiary of Jio Financial Services Ltd. In the final ownership configuration, the RIL promoter consortium will possess 45.8% of the shares, while the general public, inclusive of GDR (Global Depository Receipt) holders, will command a 54.20% stake in Jio Financial Services.
RIL’s Shareholder Incentive –
The separation of Reliance Industries’ digital fintech enterprise might not immediately unlock substantial value for the company. However, it extends an opportunity for all its shareholders to gain exposure to the swiftly expanding digital fintech sector. Ultimately, this move is expected to generate value for these shareholders. The rationale behind adopting a 1:1 demerger ratio lies in the diverse composition of Reliance Industries’ shareholder base.
Tax Ramifications of the Demerger –
Each shareholder of Reliance Industries Ltd. has been granted an equivalent share in a 1:1 ratio, signifying one share for every share already held. Given the separation from an existing enterprise and the allocation of new shares to investors based on their holdings in Reliance Industries, there arises a necessity to apportion the overall cost incurred for these shares.
Disruptive Force in Financial Services Arena? –
Following the ex-demerger event, wherein the calculated worth stands at Rs 261.85, Reliance Industries Limited (RIL) now boasts a valuation of approximately Rs 1.66 lakh crore, equivalent to nearly $20 billion. The definitive valuation, however, will materialize during the pre-open trading session, hinging upon the financial figures and assets presented in the FY23 report. Yet, what implications arise with the entry of a widely embraced, well-capitalized, and execution-driven player into India’s financial services sector? Experts hold divergent opinions regarding the potential outcomes.
On the one hand, the possibility exists that Jio Financial Services joins the ranks of numerous financial services endeavors launched by conglomerates, struggling to distinguish themselves truly. Alternatively, a different scenario emerges where the entrance of Jio Financial Services triggers rapid consolidation within the sector, placing pressure on weaker entities to sustainably price their offerings.