In one of many shareholder value-unlocking exercise expected in Reliance Industries Ltd., the National Company Law Tribunal has asked the company to seek nod from creditors and shareholders nod on May 2 for spinning off financial services business.
That will pave the way for the NCLT to give its final approval to the scheme of arrangement under which those holding shares of Reliance Industries as on April 25, 2023 will get an equal number of shares of Jio Financial Services Ltd.
If all clearances come through, the Jio Financial Services shares could list on the stock exchanges by September.
The Jio Financial Services will comprise:
Reliance Industrial Investments and Holdings Ltd. (holds RIL treasury shares)
Reliance Payment Solutions Ltd.
Jio Payments Bank Ltd. (subject to the RBI's nod)
Reliance Retail Finance Ltd.
Jio Information Aggregator Services Ltd.
Reliance Retail Insurance Broking Ltd.
A fourth of the financial services assets classified under segment reporting by Reliance is getting demerged into the new company. RIL had assets of Rs 1,08,597 crore at the end of FY22 under the financial service category. The total assets of Jio Financial services will be Rs 27,964 crore. Of this, current and non-current financial investments stand at Rs 17,629 crore.
Shareholding
While the scheme envisages Jio Financial Services to mirror RIL shareholding, there will still be certain adjustments due to trusts holding RIL shares.
The new company will not issue and allot its equity shares to two entities which held the treasury shares of the RIL.
The treasury shares are held through a trust structure (Petroleum), the sole beneficiary of which is Reliance Industrial Investments and Holdings Ltd. This company will become the subsidiary of Jio Financial Services Ltd.
In the final shareholding, the RIL promoter group will hold 45.8%, the public including GDR holders will own 54.20% stake in Jio Financial Services.
It is important to note that RIL has 36.20 lakh shareholders, with 75.10% of these holding up to 100 shares. 14.34 lakh investors or about 39.60% of the total shareholders own only up to 15 shares.
Financials
While the proforma profit and loss of Jio Financial Services was not available, RIL disclosed that the financial services business had a revenue of Rs 1,387 crore in the financial year FY22. It is unclear if the demerged financial services business will be profitable.
The company will have an authorised capital of Rs 15,005 crore and paid-up equity of Rs 6,353.1 crore.
The net worth or total financial assets of the financial services business that will be transferred to the new firm is valued at Rs 25,851 crore. This forms just 6.2% of RIL's net worth of Rs 4,16,706 crore.
RIL has ensured through the scheme of arrangement that the financial services arm will be capitalised for the future. The treasury shares controlled by Petroleum Trust, whose sole beneficiary is RIIHL, holds 41.28 crore shares or 6.27% equity in RIL valued at over Rs 92,200 crore. RIL had indicated these shares will be monetised to fund future capital requirement of Jio Financial Services.
Valuations
Once the demerger comes into effect, share price of RIL will be adjusted.
Based on the net worth of the Jio Financial Services, the businesses is valued at Rs 43.84 per share. In addition, Jio Financial Services will hold 6.27% in RIL. At a 50% holding discount, this contributes Rs 72.6 per share.
Together, that gives Jio Financial Services a value of Rs 116.50 per share.
The financial services spinoff is unlikely to unlock much value for the Reliance Industries as the size of the business is not much, according to brokerages. But it give RIL shareholders access to the fast-growing digital fintech sector, which will be capitalised sufficiently either through secondary market sale of treasury stock or by selling RIL stake to a strategic or financial investor.
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