Thursday (July 20) was the 'record date' for the demerger of Reliance Strategic Investments Ltd (RSIL) from Reliance Industries Ltd (RIL). Stock exchanges conducted a special pre-opening session (SPOS) from 9 am to 10 am on Thursday for the discovery of the share price of RIL. Record date is the cut-off date by which an investor should own shares of a company to be eligible for any corporate action such as receiving a dividend, stock splits, or bonus shares. Demerger background In October last year, RIL had said it would demerge its financial services undertaking into RSIL, which would be renamed as Jio Financial Services Ltd (JFSL). Earlier this month, RIL received approval from the National Company Law Tribunal (NCLT) for the demerger. RSIL is a wholly-owned subsidiary of RIL, and is an RBI-registered non-Deposit taking Systemically Important (ND-SI) non-banking financial company. For RIL shareholders The share ratio under the demerger process is 1:1, which means all shareholders of RIL as on the record date (Thursday) are eligible to receive one JFSL share for every RIL share they own. The demerger exercise will help unlock value for 36.39 lakh shareholders (as of the end of March 2023) of RIL. Special opening session RIL closed at Rs 2,841.85 a share on the NSE on Wednesday (July 19), up 0.62 per cent. RIL’s market capitalisation stood at Rs 19.21 lakh crore (around $233 billion). Post the demerger, RIL's market capitalisation stood at Rs 17.75 lakh crore. At this valuation, RIL continues to remain the most valued company in the country, followed by HDFC Bank (at Rs 12.70 lakh crore) in the second position, and Tata Consultancy Services (TCS) at Rs 12.64 lakh crore in the third place. On Thursday, shares of RIL opened at Rs 2,580 apiece on the NSE; Jio Financial Services was thus assigned a price of Rs 261.85 per share on the NSE (difference between RIL’s price on Wednesday and its price discovered during the SPOS). On the BSE, which too conducted a special pre-opening session, RIL opened at Rs 2,589 per share. A special pre-opening session is conducted to discover the opening price of a company’s shares. It is applicable for the first day of trading of initial public offering (IPO) securities, first day of recommencement of trading of re-listed securities, and for stocks having derivatives contracts on the ex-date of trading (which is generally two days before the record date) after undergoing corporate restructuring, including merger and demerger processes. Valuation of Jio FS In a research report, the brokerage Nuvama Institutional Equities had estimated the value of Jio Financials at Rs 1 lakh crore. The Australian financial services group Macquarie said in a recent note that after the demerger, Jio Financial Services could become the fifth-largest financial services company in India in terms of net worth. At Rs 261.85 per share, Jio Financial has been valued at around $20 billion, according to a Reuters report. A report by Jefferies had put the value of JioFS in the range of Rs 90,000-1,50,000 crore, with share price in the range of Rs 134-224 in RIL's sum of the parts (SoTP). “We incorporate Rs 179 per share as base case valuation for JFS in our SoTP,” the Jefferies report said. According to Kotak Securities, the SoTP method follows the principle of 'divide and unite'. The analysis first values each individual business of a diversified company and later, all businesses are clubbed together to calculate the total value of the diversified company. JFSL constant price If an SPOS is conducted by the exchange, the demerged company is retained in the index. The spun-off entity is included in the index at a constant price, which is the difference between the demerged company’s closing price on 'T minus 1' day (wherein T is the ex-date) and the price derived during the SPOS. “JFSL will be maintained in all the NSE and BSE indices at a constant price i.e., the difference between the close price of RIL on Wednesday (Rs 2,841.85 on the NSE), and open price of RIL discovered during the SPOS on Thursday (Rs 2,580 on the NSE). This comes to Rs 261.8 per share,” Nuvama Research said in a note. JFSL will be the 51st constituent in Nifty50 and 31st constituent in Sensex. It will be dropped from all the NSE and BSE indices at the last traded price which is effective at the open of JFSL’s listing date plus three business days. Thus, if JFSL lists on August 21, 2023, then the stock will be compulsorily deleted on August 24. The date for listing of JFSL is yet to be announced by RIL.
