Will Reliance Industries Follow The Jio Financial Services Playbook For Other Businesses?

Mukesh Ambani has spoken about enhancing shareholder value through listing two key businesses—retail and Jio Platforms Ltd. “I will take up your inputs with our board of directors on the question on IPO for Jio and Retail. The principles on timing and valuation of IPOs remain unchanged," Ambani said while responding to shareholders at the 2022 AGM. "I have outlined the plans for both businesses.”

An IPO for each of these businesses with Reliance as the majority shareholder will make the parent a holding company and will not be in the best interest of its 36.20 lakh shareholders. It's also clear that RIL will continue to be an oil-to-chemicals cash-generating company, incubating new verticals like new energy.

As a result, the shareholder value unlocking exercise which could take a few years to play out and would require each of these businesses to be capital-sufficient, and would need corporate governance structures and professionals to manage their growth.

The plan is, however, similar to Adani Enterprises Ltd.'s demerger of mature businesses to into independently listed entities in the last few years, creating wealth for shareholders including the promoters.

For Reliance, except for the new energy business that is dependent on capital from the parent, all other units have sufficiently either raised capital or have access to monetisation of assets or investments to raise capital. RIL, along with its retail unit and Jio Platforms, raised over Rs 3.24 lakh crore. It has transferred the treasury shares held by Petroleum Trust to Jio Financial Services, securing the future capital need of the fintech arm.

And the Jio Financial Services will mirror the shareholding of the parent to safeguard the interest of the small shareholders who have been invested in Reliance Industries even though they held only a couple of shares.

Ambani knows the value of diverse and large shareholders. It not only safeguards the company against institutional volatility but also provides access to a vast pool of domestic investors (36.2 lakh shareholders), 75.1% of whom hold only up to 100 shares in the company and that helped its last rights issue to succeed.

Mukesh Ambani has spoken about enhancing shareholder value through listing two key businesses—retail and Jio Platforms Ltd. “I will take up your inputs with our board of directors on the question on IPO for Jio and Retail. The principles on timing and valuation of IPOs remain unchanged," Ambani said while responding to shareholders at the 2022 AGM. "I have outlined the plans for both businesses.”

An IPO for each of these businesses with Reliance as the majority shareholder will make the parent a holding company and will not be in the best interest of its 36.20 lakh shareholders. It's also clear that RIL will continue to be an oil-to-chemicals cash-generating company, incubating new verticals like new energy.

As a result, the shareholder value unlocking exercise which could take a few years to play out and would require each of these businesses to be capital-sufficient, and would need corporate governance structures and professionals to manage their growth.

The plan is, however, similar to Adani Enterprises Ltd.'s demerger of mature businesses to into independently listed entities in the last few years, creating wealth for shareholders including the promoters.

For Reliance, except for the new energy business that is dependent on capital from the parent, all other units have sufficiently either raised capital or have access to monetisation of assets or investments to raise capital. RIL, along with its retail unit and Jio Platforms, raised over Rs 3.24 lakh crore. It has transferred the treasury shares held by Petroleum Trust to Jio Financial Services, securing the future capital need of the fintech arm.

And the Jio Financial Services will mirror the shareholding of the parent to safeguard the interest of the small shareholders who have been invested in Reliance Industries even though they held only a couple of shares.

Ambani knows the value of diverse and large shareholders. It not only safeguards the company against institutional volatility but also provides access to a vast pool of domestic investors (36.2 lakh shareholders), 75.1% of whom hold only up to 100 shares in the company and that helped its last rights issue to succeed.

If one were to go by the share-entitlement ratio used in Jio Financial Services, shareholders will get five shares of RIL for every single share held in the retail business, and two shares of the parent for every one share of Jio Platforms.

This means over 6.68 lakh shareholders (holding less than five shares) will not get any shares of retail; and nearly 4.4 lakh investors (with less than two shares each) will not be able to get any shares of the digital business shares.

With the retail and digital businesses already having financial and strategic investors, one possibility could be the distribution of Reliance shares in these businesses in the same proportion as the current shareholding of Reliance Industries.

That would unlock value for all shareholders, including the promoters.

With the share price near a one-year low, the market will await a potential announcement of the listing of Reliance Retail and Jio Platforms at this year's annual general meeting.