Explained: The Listing Dynamics of Jio Financial

Jio Financial Services, the financial services arm of Reliance Industries, will be spun out of the company on July 20. Image: Punit Paranjpe / AFP
 
Jio Financial Services, the financial services arm of Reliance Industries, will be spun out of the company on July 20. The company will be listed separately and trade on both the National Stock Exchange and Bombay Stock Exchange. In the run up to the listing, Reliance Industries has said that each shareholder of Reliance Industries will be eligible for shares in Jio Financial in a 1:1 ratio. How will this process work?  
 

Record date for demerger

To determine the eligibility of any company event (dividend payouts, annual general meetings, spin offs, mergers), a record date is set. This is the date on which shareholders, whose name is on the company register, are eligible to participate. In the Jio Financial spin-off, the record date has been set at July 20. On that date, any shareholder, who holds shares in the parent Reliance Industries, will be eligible to receive shares in Jio Financial Services. Ratio has been set at one share of Jio Financial Services for every share held in Reliance Industries.
 

Special Session

Price discovery of the two new entities is essential and for this the National Stock Exchange will hold a special pre-open session on July 20. How will this work? Suppose RIL ends the special session at Rs 1,500 and it closed on Wednesday, July 19, at Rs 1,350. Then, Jio Financial would be valued at Rs 150. Shareholders would receive shares ascribed at this value in their demat accounts and RIL shares would trade at the lower value i.e. the value of Reliance Industries minus the value of Jio Financial Services.

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Jio Financial as a Nifty stock

Jio Financial would be included in the Nifty as its 51st stock and stay there at a constant price till the time it is listed. It would then be removed from the Nifty on the third day after it is listed, giving funds that track indices time to either exit the stock or to buy as per their mandate. All Futures and Options contracts for Reliance Industry automatically expire on July 19.
 

How is the market valuing Jio Financial?

Jio Financial Services will hold about 6.1 percent of treasury stock of Reliance Industries. On the basis of this alone, at one time book value, the market is valuing the company at Rs 160-200 per share. Jio Financial still has to come up with any growth targets and projections for the market to value the company. The forthcoming Reliance Industries annual general meeting is expected to detail plans in this area. Once that is done, investors would have an easier time valuing the company. At present, competition in the consumer lending space trades at 5-7 times book value.