Reliance begins process to demerge finserv business

Calls meeting of creditors, shareholders on May 2

reliance industries, india
RIL’s board had approved the demerger in November 2022.

Reliance Industries (RIL) has initiated the process to demerge its financial services business into Reliance Strategic Investments (RSIL) and rechristen it Jio Financial Services (JFSL).

The company has convened a meeting of creditors and shareholders on May 2 to seek their approvals, pursuant to the National Company Law Tribunal’s (Mumbai bench) March 27 order, for the spin-off. The voting will commence on April 27 and end on May 1, RIL said in a regulatory update.

RIL’s board had approved the demerger in November 2022. At present, RSIL is a wholly-owned subsidiary of RIL and is an RBI-registered non-deposit-taking systemically important non-banking financial company.

According to the contours of the deal, RIL will issue one share of the demerged company with a value of Rs 10 each for every one share held in RIL. The appointed date for the demerger is March 31, 2023. Upon the scheme becoming effective, the name of the demerged firm will be changed to JFSL and the new firm will be listed on the Indian bourses.

KV Kamath, former MD and CEO of ICICI Bank, was named non-executive chairman of JFS.

“Further growth and expansion of the financial services business would require differentiated strategy aligned to its industry specific risks, market dynamics and growth trajectory,” RIL said on the rationale of the demerger.

The creation of an independent company would help in focusing exclusively and exploring for opportunities in the financial services sector. Further, the independent company can attract different sets of investors, strategic partners, lenders and other stakeholders having a specific interest in the financial services business, it said.

The demerger will unlock value for RIL’s shareholders, it added.

In October 2022, announcing the demerger, RIL CMD Mukesh Ambani said: “JFS will be a truly transformational, customer-centric and digital-first financial services enterprise offering simple, affordable, innovative and intuitive financial services products to all Indians.”

“JFS is uniquely positioned to capture multiple growth opportunities in financial services bringing millions of Indians into formal financial institutions,” he had said and added that JFS will leverage the nation-wide omni-channel presence of RIL’s consumer businesses.

At present, RIL’s financial services business comprises its investment arm Reliance Industrial Investments and Holdings (RIIHL), Reliance Retail Finance, Reliance Payment Solutions, Reliance Retail Insurance Broking, Reliance Strategic Investments, Jio Information Aggregator Services and Jio Payments Bank.

The investment of RIL in RIIHL – 6.1% stake in RIL is owned by RIIHL — would be transferred to JFS, while the latter would also acquire liquid assets to provide adequate regulatory capital for lending. It will incubate financial services verticals such as insurance, payments, digital broking and asset management. The regulatory licenses for the key businesses are already in place.

RIL’s financial services business, along with that of Reliance Strategic Investments, posted a combined revenue of Rs 1,535.6 crore in 2021-22, with an asset base of Rs 27,964 crore.

Earlier when the announcement was made, sector analysts had given a thumbs up to the demerger plan.

“We view the JFS demerger as very positive, as it allows for the creation of a consumer and merchant lender leveraging RIL’s digital and retail strengths. JFS plans to leverage RIL’s digital capability and focus on digital delivery of financial products and launch consumer and merchant lending,” JP Morgan said in a report in 2022.

“While the entire regulatory approval process could take multiple quarters, and the demerger of JFS is not a precursor to potential demerger of the consumer businesses, we believe this would be welcomed by investors given RIL’s massive footprint across Jio and retail,” it had added.

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First published on: 31-03-2023 at 06:00 IST
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