Jio Platforms listing: A vertical split mirroring Jio Financial, or an IPO?

Ever since Jio Financial Services Ltd (JFSL) was listed in July 2023, investors have been awaiting news on the potential listing of another subsidiary of Reliance Industries Ltd (RIL)—its telecom arm, Jio Platforms Ltd.

While Jio Platforms is likely to be listed in the near future, the key question is whether it will be done through a vertical split or a public issue. 

A vertical split is a mirror image of RIL’s shareholding pattern. Simply put, if a shareholder has 100 shares of RIL, they will get 100 shares of Jio Platforms upon listing. 

RIL’s promoters have a 50% stake in Jio Platforms, and RIL a 66% holding. Thus, in the case of a vertical split, RIL’s promoters would have about 33% direct ownership in Jio Platforms.

Reliance opted for a vertical split when listing Jio Financial Services. After the split, RIL’s promoters gained direct ownership of JFSL, with a 46% stake that they have since raised to 47%. 

The market cheered the listing as it avoided a holding-company discount, and Jefferies India’s analysts expect RIL to go with a vertical split for Jio Platforms, too. However, the answer may not be that straightforward in this case.

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While JFSL’s split led to a 46% promoter shareholding, close to a simple majority of 51%, the same exercise may give RIL’s promoters a mere 33% stake in Jio Platforms. Jefferies offers them a solution—raise the RIL promoters' stake in Jio after the listing to bring it closer to 51%, as they did with JFSL.

A pricey proposition

But there’s a problem. Increasing the RIL promoters' stake in Jio Platforms to 51% would require far more resources than was necessary for JFSL.

Based on JFSL's current market price, the cost of increasing their stake in the company to 51% would be about ₹10,000 crore. This is a tiny sum for RIL's promoters, considering their net worth of ₹10 trillion. 

However, increasing their stake in Jio Platforms to 51% would cause a dent. Jio Platforms’ market capitalisation is likely to be around ₹10 trillion, so buying an 18% stake later could cost ₹1.8 trillion, or about 18% of the promoters’ net worth.

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The other option is to go for a public issue. 

In that case, RIL would maintain its shareholding at 66% and give the promoters more control over the company. 

This might attract a holding-company discount, which could be about 20% in the base case, according to the analysts at Jefferies. 

This would value RIL at around 5% less than Jefferies’ sum-of-the-parts valuation from a vertical split. In other words, RIL’s market capitalisation and the promoters’ stake would be worth 5% less—hardly a big price to pay to retain a controlling stake.

The Jefferies report, dated 10 July, however, highlighted that it could be difficult to fill the retail investors’ quota in a public issue as the offering would be huge. 

Then again, the IPO size of Life Insurance Corporation of India Ltd (LIC) was ₹21,000 crore, of which the retail portion was 35%, or ₹7,000 crore. This quota was oversubscribed by two times, indicating a potential retail appetite of ₹14,000 crore. 

This amounts to about 5% of the potential market cap of Jio Platforms, assuming a retail quota of 35%. 

Considering RIL’s penchant for setting records, it may be able to manage the issue. It could also consider innovative options such as offering partly paid shares or a discount for existing RIL shareholders.

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This may all be conjecture now, but it wouldn’t be wise to rule out any option. While investors may prefer a vertical split, going by the success of the JFSL listing, it’s just as likely that RIL’s promoters may opt for the IPO route to retain a controlling stake in Jio Platforms.