Reliance announces demerger and separate listing of financial services segment

Alongside Q2 FY 23 results, Reliance Industries Limited (RIL) has announced demerger and listing of a subsidiary, Reliance Strategic Investments Limited (RSIL) to focus on the financial services segment.

• RSIL is currently a wholly-owned subsidiary of RIL and is a RBI-registered non-Deposit taking Systemically Important (ND-SI) Non-Banking Financial Company (NBFC).
• RIL will demerge it’s financial services undertaking into RSIL and rename RSIL to Jio Financial Services Limited (JFSL).
• The scheme of demerger will see the transfer of treasury shares (6.1% of total RIL shareholding) to the demerged entity JFSL. At current market cap of RIL, this implies a value of ~Rs1 trn to start with, to bolster the balance sheet ahead of the launch of the targeted businesses.
• JFSL is targeting businesses including lending to consumers, merchants and other financial services verticals such as insurance, payments, digital broking, asset management. The regulatory licenses for the key businesses are mentioned to be already in place.
  • JFSL will evaluate organic growth, joint-venture partnerships as well as inorganic opportunities to undertake above businesses.
• Shareholders of RIL will receive one equity share of JFSL for one share held in RIL.

RIL is aiming to leverage it’s 500mn+ consumer touchpoints via its Jio and retail businesses to scale up the financial services business.

Rationale for demerger

In my view, it’s because financial services businesses are generally subject to greater regulatory scrutiny. It therefore makes sense to separate them from other businesses.

Combined that with RIL’s well known strategy of value unlocking… demerger does make perfect sense.