M&A: Reliance Industries to demerge its financial services business into Reliance Strategic Investments.
Transaction:
- Jio financial services (JFS), demerged entity of Reliance Industries Ltd. (RIL), is set to be listed on the stock exchanges. The price of JFS’s share was discovered to be Rs. 261.85 in a special trading session on 20th July.
- Earlier RIL announced in October 2022 that it would demerge and list its financial services business – Reliance Strategic Investments – which will be renamed Jio Financial Services.
About Reliance Industries Limited:
- Reliance is India’s largest private sector company to be featured in Fortune Global 500 with a consolidated revenue of INR 792,756 Crore ($104.6 billion) and net profit of INR 67,845 Crore ($9.0 billion) for the FY22.
- Reliance’s activities span hydrocarbon exploration and production, petroleum refining and marketing, petrochemicals, advanced materials and composites, renewables (solar and hydrogen), financial services, retail and digital services.
About Jio Financial Services:
- Reliance Strategic Investments Limited (RSIL; the resulting entity) is a wholly-owned subsidiary of RIL and an RBI registered non-banking financial company (NBFC), which post demerger, will be renamed to Jio Financial Services.
- The investment of RIL in Reliance Industrial Investments and Holdings Limited (“RIIHL”), which is a part of the financial services undertaking of RIL, will stand transferred to JFSL.
- Purpose of JFS is to provide capital to merchants and consumers (i.e. lending business) and incubate other financial verticals such as asset management, insurance, digital broking, payments etc.
Rationale:
- Pursuant to scheme, shareholders of RIL will receive 1 equity share of JFL for 1 equity share of RIL.
- The discovered price of JFS is the difference between RIL’s closing price of 2841 on July 19th and price of Rs. 2580 on the special trading session on July 20, leading to market cap of around Rs. 1.7 lakh Crore at the time of listing.
- The price of JFS stock of Rs. 261.85 is much higher than analyst expectation of Rs. 170 to 190 due to investor expectations of future performance of JFS due to RIL Jio’s large consumer base.
- JFS will become the third largest NFSC after Bajaj finance and Bajaj Finserve.
- JFS and its subsidiaries plan to leverage the technology capability and nationwide presence of RIL’s consumer businesses.
- JFS plans to launch consumer and merchant lending business based on proprietary data analytics to complement and supplement the traditional credit bureau-based underwriting.
JFS- Blackrock JV:
- Jio Financial Services (JFS) has earlier joined hands with BlackRock to form Jio BlackRock, a 50:50 joint venture that combines the respective strengths of BlackRock and JFS to deliver tech-enabled access to affordable, innovative investment solutions for millions of investors in India.
- Together, the partnership will introduce a new player to the Indian market with a combination of scope, scale, and resources. JFS and BlackRock are targeting an initial investment of $150 million each in the joint venture.
Acknowledgements:
RBI Bulletin (www.bulletin.rbi.org.in), SEBI (www.sebi.gov.in), NSE (www.nseindia.com), BSE (www.bseindia.com)
Disclaimer:
This material has been prepared by the personnel in Vora Corporate Finance which is Investment Banking arm of Vora Management Consultancy Private Limited and looks after Mergers & Acquisitions (M&A), Private Equity (PE), Fund Raising, Debt syndication and Valuations and is based out of Ahmedabad, Gujarat, India. Any views or opinions expressed herein are solely that of individual authors and may differ from view of Vora Management Consultancy Private Limited. This material is proprietary to Vora Management Consultancy Private Limited and is for your personal use only. Any distribution, copy, reprints or forward to others is strictly prohibited.
This material captures the information based on information available in the public domain, public announcements and sources believed to be reliable. Analysis contained herein is based on publicly available information and appropriate assumptions. This material is intended merely to highlight market developments and is not intended to be comprehensive and does not constitute strategic, investment, legal or tax advice. In no event Vora Management Consultancy Private Limited be liable for any use by any party or for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you for evaluating any transaction.
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