Jio Financial Services: The demerged financial services arm will unlock value for RIL shareholders and “give them an opportunity to be part of a new growth platform,” RIL said in its annual report recently.
Shares of Jio Financial Services Ltd (JFS), the financial arm of Reliance Industries Ltd, were listed at Rs 265 per share on the BSE, up 1.18 per cent from the opening price of Rs 261.85 per share on July 20. Stocks hit highs. 278.20 and a maximum of Rs 253.30 in the first five minutes of trading. 262 per share on the NSE. With this, JFS has captured a market capitalization of Rs 1,68,362.03 crore. The stock is admitted for trading in ‘T’ group securities on BSE.
Jio Financial Services shares were credited to eligible shareholders of Reliance Industries (RIL) last week in the ratio of 1:1. Based on the record date of the corporate event, the detected share price for Jio Financial Services is higher than the street estimate of Rs 160-170 per share.
Apart from the stake in RIL, assets worth $2.5 billion, or Rs 33 apiece, are earmarked in Jio Financial Services, brokerage CLSA said. CLSA said, it supports a loan book of $13-15 billion. Even at the pace of Bajaj Finance’s recent annual loan book growth, Jio Financial Services will take about three years to fully utilize the fund, an overseas brokerage said. Most lending finance companies, except Bajaj Finance and Chola, trade at three times lower book-to-book ratios with earnings ratios above 20 percent. CLSA said, Core Jio Financial Services will require a PAT of more than $500 million.
“Jio Financial Services will be pushed out of major domestic benchmark indices after three days and this will force selling by passive funds. Jio Financial Services is owned by CLSA’s India Focus Portfolio, based on RIL’s ownership, but exited in first 30 minutes. Plans to exit. Average pricing gives preference to banks,” CLSA said. .
CLSA said a larger core book would reduce the need for Jio Financial Services to sell its stake in Reliance Industries in the near term.
Shares of Jio Financial Services will remain under the T group of BSE for the first 10 trading sessions. No intraday trading is allowed.
RIL recently said in its annual report that the demerged financial services arm unlocks value for RIL shareholders and “gives them an opportunity to be part of a new growth platform.”
Jio Financial Services stock will be delinked from the Nifty and Sensex after the end of its third day of listing, i.e. August 24. However, the delisting date will be postponed in certain situations. According to Abhilash Pagaria of Nuama Institutional Equities, there could be passive outflows on the counter.
“Assuming a hypothetical price scenario on the third day of trading (T) + listing for Jio Financial Services – Rs 261.8 per share – Nifty index passive trackers can sell around 9 crore shares, which equates to around $290 million. Sensex index tracker can also sell 55 million shares, which equivalent to $175 million, Pagaria said.
It is calculated at the current free float and the Jio Financial Services weightage is assumed to be less than 1 per cent in the Nifty and around 1 per cent in the Sensex.
“If the spin-off unit reaches the price bar on both of the first two days of a three-day period, then the exclusion date will be pushed back by another three days. If the spin-off unit does not hit the price bar after two consecutive days of observation of the spun-off unit, after the third trading day of such observation, The spin-off entity will be delisted. The stock will no longer be delisted, not deferred,” Pagaria Nuama said.
Recall that July 20 was the record date for the merger of the separate financial services businesses of Reliance Industries (RIL). The price find of 261.85 is based on the difference between RIL’s closing price of 2,841.85 on July 19 and RIL’s pre-deal price of 2,580 in the pre-open session. Last week, eligible shareholders of Reliance Industries received Jio Financial Services shares in a 1:1 ratio.
Meanwhile, Jio Financial will be pegged at zero on August 21 by FTSE indices. To simplify, FTSE passive trackers assign zero value to Jio Financial Services shares, gradually delisting them after Jio’s trading start. The MSCI Index manages JFS shares.
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