Ambani’s Finance Unit Valued at $20 Billion After Spinoff

Reliance Industries Ltd’s financial services unit was valued at about $20 billion after a special session conducted by exchanges to discover its trading value.

(Bloomberg) — Reliance Industries Ltd’s financial services unit was valued at about $20 billion after a special session conducted by exchanges to discover its trading value. 

Jio Financial Services Ltd. was priced at 261.85 rupees ($3.19) apiece based on the difference between Reliance’s stock price at Wednesday’s close and trading at 10:00 am Thursday in Mumbai following an hour-long special pre-market session. Reliance, India’s most valuable company, will now trade on exchanges without its financial services unit. 

JPMorgan Chase & Co. and Axis Securities had expected Jio Financial to be priced in the range of 160 to 189 rupees per share. Avendus Spark estimated the company to be valued at as much as $14 billion.

On Wednesday, Reliance Industries said after the spinoff, each share in Jio Financial would be equivalent to 4.7% of Reliance’s closing price that day. This would value Jio’s stock at 133 rupees apiece. 

The spinoff will bring Mukesh Ambani, one of Asia’s richest men, one step closer to creating the type of multi-purpose empire that’s similar to Alibaba Group Holding Ltd. and Tencent Holdings Ltd. Ambani has big ambitions to gather various segments of the business – including telecoms, financial and e-commerce services – all within a larger conglomerate.

Reliance’s shares rose as much as 1.7% to 2,632 rupees on Thursday. 

New Methodology

This marks the first time that Indian exchanges utilized a new method of price discovery for listed companies undergoing mergers and acquisitions as they seek to minimize price swings in benchmark indexes. Trading in Jio Financial will start at a later date but authorities are watching for any market volatility as Reliance Industries carries about 11% weight in the Nifty 50 gauge.

“Passive funds have gone big in India over the last 3 to 4 years, so exchanges had to come up with rules to avoid any disruption to index components,” said Abhilash Pagaria, an analyst with Nuvama Wealth Management Ltd. “There can’t be a better way of handling a demerger.” 

Pagaria said it may take up to a month for Jio Financial’s shares to be listed since the entity will be carved out from one of India’s biggest companies.

RIL offered one share of Jio Financial for every share owned by RIL’s investors. RIL’s stock closed at an all-time high on Wednesday as investors made a last-minute attempt to qualify for Jio’s shares. 

Ambani surprised investors last year by announcing the demerger of Reliance Strategic Investments and Holdings Ltd. and its subsequent listing as Jio Financial to unlock the value of his oil-to-telecoms conglomerate.

While analysts have indicated that the financial unit will be valued at one time price-to-book of trailing 12-month earnings, they expect the company to command a premium valuation as Reliance details a strategic roadmap going ahead.

“Even though this entity has little revenue at this point, there is vast potential for growth, they can expand rapidly,” said Deven Choksey, managing director at KR Choksey Shares & Securities Pvt Ltd. He expects Jio Financial’s assets under management to grow to $122 billion and forecasts revenue of $12.2 billion for the company over the next five years.

(Updates with analyst comment in seventh and eighth paragraphs)

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