Reliance Industries recently announced the demerger of its financial services business into Reliance Strategic Investments. RIL has fixed July 20 as the record date to determine eligible shareholders for the allotment of shares of the resulting company.
Reliance Strategic Investments Limited (RSIL; the resulting entity) is a wholly-owned subsidiary of Reliance Industries and an RBI-registered non-banking financial company (NBFC) Post its demerger, it will be renamed to Jio Financial Services (JFS).
Due to this demerger scheme, 1 additional equity share of Reliance Strategic Investments Ltd. will be allotted for every 1 equity share held in Reliance Industries Ltd
What is Jio Financial Services?
Jio Financial Services is a financial services company with investments in 6 companies
- Reliance Industrial Investments and Holdings (RIIHL),
- Reliance Payment Solutions
- Jio Payments Bank
- Reliance Retail Finance
- Jio Information Aggregator Services
- Reliance Retail Insurance Broking Ltd
Why was the demerger done?
- Reliance Industries is India’s biggest conglomerate with interests in multiple businesses, like digital services, retail, financial services, advanced materials and composites, renewables (solar and hydrogen), exploration & production and oil to chemicals.
- One among the multiple businesses carried on by the Company is the Financial Services business, which is carried on by the Demerged Company directly and through its subsidiaries and joint ventures.
- Further growth and expansion of the Financial Services Business would require a differentiated strategy aligned to its industry-specific risks, market dynamics and growth trajectory.
- The nature and competition involved in the financial services business is distinct from the other businesses, and it is capable of attracting a different set of investors, strategic partners, lenders and other stakeholders.
Benefits of the demerger:
After the demerger, the Financial Services Business will get the following benefits:
(a) Creation of an independent company focusing exclusively on financial services and exploring opportunities in the said sector.
(b) The independent company can attract different sets of investors, strategic partners, lenders and other stakeholders having a specific interest in the financial services business.
(c) A financial services company can have higher leverage (as compared to the Demerged Company) for its growth
(d) Unlocking value of the Demerged Undertaking for the shareholders of the Demerged Company.
Impact of demerger on Portfolio/FnO Positions:
When a company demerges into one or more new entities, the original company gives its shareholders more shares of demerged companies. In the case of RIL shareholders, 1 equity share of Reliance Strategic Investments Ltd. will be allotted for every 1 equity share held in Reliance Industries Ltd.
How is the Buy Average Price calculated post demerger:
If you bought a share at Rs.100 and it demerged, what’s the purchase price of the additional equity shares received as per the scheme?
The demerged company will (usually) issue a note, regarding the percentage of Cost of Acquisition of equity shares in Demerged Company and Resulting Company, so this is how you should split your acquisition price.
RIL has declared the cost of acquisition. It is as follows:
So if you have bought one share of RIL at Rs 100 before the demerger, then
- You will have one share of RIL at Rs 95.32 and
- One share of Reliance Strategic Investments Ltd at Rs 4.68 post the demerger.
Please note that-
- The date of purchase of all the demerged shares(RSIL) is the same and the buy average for your existing holdings will be updated once the company declares the cost of acquisition and Reliance Strategic Investments shares are listed in exchanges
- All F&O Contracts will display the actual expiry date but the contracts will be available to trade till 19-Jul-2023, irrespective of the actual expiry. Derivatives contracts on RIL shall be introduced again (with expiry July 27, 2023, August 31, 2023 and September 28, 2023) from July 20, 2023 being the ex-date of the underlying.
Source: RIL Scheme of arrangement
Special Pre-open Session (SPOS):
As RIL has derivatives contracts, the National Stock Exchange will conduct a special pre-open session for Reliance Industries on July 20 to determine the equilibrium price, as the conglomerate is set to demerge its financial services business. In consequence, the new entity(Reliance Strategic Investments), will be temporarily included in the Nifty 50 index on the same day at 10 AM as the 51st entity, said NSE.
SPOS is to minimise volatility and discover the equilibrium price of securities. Between 9:00 AM to 9:45 AM, orders can be entered, modified and cancelled. Between 9:45 AM to 9:55 AM, orders are matched, trades are confirmed, and the opening price is determined. The last five minutes are used as a buffer period for transition from pre-open to normal market.
Once the price for RIL is derived during the special pre-open session on July 20, a constant price for the spun-off entity (Reliance Strategic Investments) will be derived, which is the difference between the RIL’s closing price on July 19 (ex-demerger date), and the price derived during the special pre-open session on July 20.
For more details FAQ’s on SPOS: Special Pre-Open Session
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