Reliance - Jio Financial Services demerger: what you need to know

Billionaire Mukesh Ambani's Reliance Industries, India's most valuable company, will demerge its financial services business on Thursday as part of a move to unlock value. The local stock exchanges will on Thursday hold a special "price discovery" session for the first time ever to determine the value of Jio Financial Services' shares. Five analysts estimate that Reliance's Jio Financial Services will be valued at 160-190 rupees per share.

What happens to Reliance stocks on Thursday?

The National Stock Exchange and the Bombay Stock Exchange will hold a "pre-open call auction" session for Reliance on Thursday between 9:00 a.m. to 10.00 a.m. IST (0330-0440 GMT), with Wednesday's closing level of 2,841.85 rupees taken as the reference price. A constant share price of Jio Financial Services will be determined by calculating the difference between Reliance's last close and the stock's settling price at the end of the special session.

Reliance shares will then trade at the new price on all existing indexes on Thursday. However, Jio Financial Services' stock will be included in the indexes, including the blue-chip Nifty 50 (.NSEI), but will not trade until it is listed.

New Index inclusion rules for emerged firms 

India's NSE in April changed the rules on how spun-off companies would be included in indexes to reduce churn in their constituents. All newly listed entities were earlier excluded from indexes and, in cases of indexes with fixed constituents, were replaced with another eligible stock. According to the new rules, any newly listed spun-off businesses will be initially included in indexes at a constant price - which is the difference between the demerged firm's closing price the day before the ex-demerger date and the price during a special pre-open session on the ex-demerger date. The demerged entity will be removed from the index at the end of its third day of listing.

The Demerger

Reliance announced last October that it would demerge and list its financial services business - Reliance Strategic Investments - which will be renamed Jio Financial Services (JFS). Reliance shareholders would get one share of Jio Financial Services for holding one share of Reliance. The company has set July 20 as the demerger record date, or the cut-off date used to determine which shareholders are eligible. Veteran banker KV Kamath will be the non-executive chairman and former ICICI Bank (ICBK.NS) executive Hitesh Sethia will be the CEO. Analysts believe JFS' access to vast amounts of data and Reliance's possession of a non-bank finance company license will help the company kick-start lending. Macquarie Research also said the company will "likely be an AAA-rated entity which can borrow at attractive rates."