Mumbai: Reliance Industries’ financial services unit was valued at about $20.3 billion after a special session conducted by exchanges to discover its trading value.
Jio Financial Services was priced at Rs261.85 apiece based on the difference between Reliance’s Wednesday closing price and the new price today at 10:00 am in Mumbai following an hour long special pre-market session for India’s most valued company. Reliance will now trade on Indian exchanges without the value of the financial services unit.
Reliance Industries said that post spinoff cost of owning stake in Jio Financial worked out at 4.7 per cent of the stock’s previous close, valuing the shares of the demerged entity at Rs133 apiece, according to the company statement. Reliance shares were traded as much as 1.6 per cent higher at Rs2,630.5 on Thursday.
Jio Financial was expected to be priced in the range of Rs160 to 189 ($1.95 to $2.30) per share, according to JPMorgan Chase & Co. and Axis Securities. Avendus Spark had pegged the company to be valued at as much as $14 billion after the listing.
The finance arm is pegged to help one of Asia’s richest men Mukesh Ambani get a step closer to creating an ecosystem similar to Alibaba Group Holding and Tencent Holdings in China where in its telecom business customers are provided all financial and e-commerce services under one roof.
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 per cent weight in the Nifty 50 gauge.
RIL offered a share of Jio Financial for a share of itself held by investors. The stock closed at an all-time high on Wednesday as investors made a last-minute attempt to qualify for Jio’s shares.
Jio is likely to have a captive customer base of over 400 million telecom users of Reliance Jio and over 300 million of Reliance’s organised retail venture. While analysts have currently 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 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,” Deven Choksey, managing director at KR Choksey Shares & Securities said over phone. Choksey sees Jio Financial’s assets under management to grow $122 billion and clock revenues of $12.2 billion over the next five years.
“They have money to lend, customers to borrow and technology to deploy. Its a win-win situation for investors. It will be success,” Choksey said.