Case Study

Demerger of Jio Financial

Services Limited from
Reliance Industries
Limited

Submitted to : Dr. Sonia Garg

Submitted By:

Aarzoo 502304002
Akanksha 502304014
Geetanjali 502304061
Gopal 502304063
Harshit Gupta 502304067
Isha 502304076
Reliance-Jio Financial Services Demergeri
In October 2022, The Board of Directors of Reliance Industries Limited (“RIL”), approved a
Scheme of Arrangement amongst RIL, Reliance Strategic Investments Limited (“RSIL”) and
their respective shareholders and creditors in terms of which, RIL will demerge its financial
services undertaking into RSIL, to be renamed Jio Financial Services Limited (“JFSL”) . JFSL
would be listed on the Indian stock exchanges.
The financial demerger of Jio Financial Services Limited (JFSL) from Reliance Industries
Limited (RIL) underscores several challenges stemming from the complexities of RIL's
corporate and operational structure. One of the primary issues was the intricate web of
subsidiaries, joint ventures, and holding companies within RIL, which created opacity in
financial reporting. This complexity made it difficult for stakeholders to trace the movement
of funds and fully assess the company's financial standing. Such a lack of transparency raised
doubts about the organization’s financial integrity, potentially damaging its reputation and
eroding trust among investors and regulators.
Significant challenge was related to corporate governance and related party transactions. The
multi-layered structure of RIL heightened the risks of transactions between related entities not
being conducted at arm's length. These dealings could lead to conflicts of interest, financial
impropriety, and regulatory scrutiny. The situation highlighted the critical need for robust
governance mechanisms to ensure ethical practices, regulatory compliance, and effective
oversight. Additionally, the absence of streamlined risk management practices posed
considerable challenges. The complex structure made it difficult to identify, assess, and
mitigate financial, operational, and compliance risks, exposing the company to potential
vulnerabilities and threatening its long-term stability.
Regulatory compliance emerged as a key area of concern, as adhering to diverse requirements
such as tax laws, corporate governance norms, and accounting standards became increasingly
challenging. Any lapses could result in penalties, legal actions, and reputational damage,
further complicating the demerger process. Moreover, the complexity of the corporate structure
impeded efficient capital allocation and strategic decision-making. Inefficiencies in investment
planning and resource management risked underperformance and missed growth opportunities,
undermining the value creation potential for both RIL’s core business and JFSL.
Financial reporting and stakeholder communication also proved problematic. Accurate
reporting was hindered by the intricate structure, complicating external auditing and reducing
investor confidence. Furthermore, ineffective communication practices led to
misunderstandings and negative perceptions among stakeholders, potentially impacting the
company’s market valuation and public image.
The Jio demerger exemplifies the challenges associated with managing complex corporate
structures during organizational transformations. Addressing these issues requires simplifying
operations, enhancing transparency, strengthening governance, and improving risk
management and communication practices. By tackling these challenges effectively,
companies can foster stakeholder trust, improve operational efficiency, and achieve sustainable
growth and value creation.
The demerger, announced in March 2023, involved transferring Reliance Industries' 6.1%
treasury shares into the new company. Each Reliance Industries shareholder received one share
of Jio Financial Services for every share they owned as of July 20, the demerger's record date.
Jio Financial Services stocks were also included in the key NSE indices such as Nifty, Nifty
100, Nifty 200, etc. The demerger is expected to unlock value for both Reliance Industries and
Jio Financial Services and create new opportunities for growth and innovation in India’s
financial sector.
Jio Financial Services provides various Services, including payments, lending, insurance,
wealth management, etc. The demerger aimed to attract different investors, partners, lenders
and stakeholders who are interested in the financial services sector. The demerger also aimed
to unlock value for both Reliance Industries and Jio Financial Services, the new entity formed
after the demerger. The demerger also aimed to leverage the data analytics and customer base
of Reliance Industries’ other businesses such as Jio, Retail, etc.
Timeline of Jio Financial Services Demerger
July,22 1999 - Reliance Strategic Investments Private Limited was incorporated
July,20 2002 – It is converted to Public Limited Company
October,20 2022 - Reliance Industries has separated its financial services operations into a
separate entity called Jio Financial Services Ltd. (JFSL).
July,01 2023 – The effective date of the demerger
July,20 2023 - The record date for the demerger, i.e., the cut-off date for the shareholders of
Reliance Industries to be eligible for the allotment of JFSL shares.
July,20 2023 - The stock exchanges conducted a special pre-open session to discover the share
price of Reliance Industries and JFSL after the demerger.
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Reliance Industries Limited (RIL)

Reliance Industries Limited (RIL) is a flagship conglomerate and one of India’s most influential
companies, driving significant contributions to the country's economy. Founded by Dhirubhai
Ambani in 1973, the company initially focused on textiles but expanded into a diverse range
of industries, including petrochemicals, refining, retail, telecommunications, and digital
services. Over the decades, RIL has built a reputation for scale, efficiency, and innovation,
becoming a Fortune Global 500 company and India’s largest company by market capitalization.
The core business segments of RIL are such as, Energy and Petrochemicals in which RIL
operates one of the world’s largest refining complexes in Jamnagar, Gujarat, and is a global
leader in petrochemicals. Reliance Retail, the largest retailer in India, has revolutionized the
retail landscape with its vast network of stores across categories like groceries, electronics, and
fashion. It also collaborates with global brands, enhancing its footprint in premium markets.
The launch of Reliance Jio in 2016 disrupted India’s telecom market by offering affordable 4G
services, leading to a digital transformation in the country. Jio has since diversified into
broadband, enterprise solutions, and digital platforms. Also, RIL has aggressively invested in
renewable energy projects, including solar, wind, and hydrogen energy, aligning with its
ambition to become a leader in sustainable energy solutions globally.
The Key initiatives and innovations of RIL are in two major areas, Strategic Restructuring and
Digital Focus. RIL has consistently unlocked shareholder value through initiatives like
demergers (e.g., Jio Financial Services) and forming partnerships with global investors in Jio
Platforms and Reliance Retail. Through Jio and digital platforms, RIL is building a tech-driven
ecosystem that integrates e-commerce, digital payments, and cloud services, positioning itself
as a key player in India’s digital economy.

Jio Financial Services Limited (JFSL)

Jio Financial Services Limited (JFSL) was initially incorporated as Reliance Strategic
Investments Private Limited on July 22, 1999, and later converted to a public limited company
in 2002. Following the demerger from Reliance Industries Limited under a Scheme of
Arrangement, it was renamed JFSL on July 25, 2023. JFSL is a systemically important, non-
deposit-taking Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India (RBI). The RBI has required JFSL to meet eligibility criteria for Core Investment
Company (CIC) status and apply for conversion to NBFC-CIC within six months of the
Scheme's effectiveness or three months of its listing, whichever is earlier.
Jio Financial Services Limited (JFSL) is a diversified financial services entity demerged from
Reliance Industries Limited in 2023. Positioned as a key player in India's burgeoning financial
ecosystem, JFSL focuses on consumer and merchant lending, insurance, asset management,
and digital payments. Leveraging the extensive customer base of Reliance Jio and Reliance
Retail, JFSL aims to drive financial inclusion through innovative, tech-driven solutions. Listed
independently on Indian stock exchanges, it quickly became one of the top financial services
companies by market capitalization, reflecting investor confidence in its growth potential. With
a focus on leveraging fintech advancements, JFSL is poised to disrupt traditional financial
services and capitalize on the rapid digitization of India's economy.
The Strategic vision and opportunities with JFSL’s foundation rests on leveraging technology
and data to disrupt traditional financial services, focusing on financial inclusion and seamless
customer experiences. By integrating its offerings with the expansive digital and physical
ecosystems of RIL, JFSL is positioned to reach underserved markets, particularly in Tier II and
Tier III cities. The company aims to capitalize on India’s growing fintech landscape,
underpinned by increasing digital adoption and government initiatives for a cashless
[Link] benefits from synergies with Jio’s telecom network, which provides access to
millions of users, and Reliance Retail’s distribution network, ensuring nationwide reach. This
integration allows JFSL to provide tailored financial products and services, such as Buy Now
Pay Later (BNPL) solutions, credit, and digital payment systems, creating a unified experience
for customers.
Financial Products and Servicesii
• Payments : Reliance Payment Solutions Ltd. and Jio Payments Bank Ltd., pending
approval from the Reserve Bank of India (RBI), provide digital payment options like
JioMoney, JioPOS, and JioPay.
• Lending : This includes Reliance Retail Finance Ltd. which offers consumer and
merchant lending based on proprietary data analytics.
• Insurance : This includes Reliance Retail Insurance Broking Ltd., which offers
insurance products such as health, life, motor, travel, etc.
 • Wealth Management : This includes Jio Information Aggregator Services Ltd., which
offers digital broking and asset management services
Subsidiary of Jio Financial Services Limited
• Reliance Retail Insurance Broking Limited
• Reliance Industrial Investments and Holdings Limited
• Reliance Retail Finance Limited
• Reliance Payment Solutions Limited
• Jio Information Aggregator Services Limited
• Jio Infrastructure Management Services Limited

Share Capitaliii
➢ The share capital of the Demerged Company as on October 21, 2022

➢ The share capital of the Resulting Company as on October 21, 2022

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 ➢ Share Capital of the company post scheme of arrangement coming into effectiv

Related Party Disclosures

Shareholding pattern of the Company prior and post Scheme
➢ The Shareholding pattern of the Company, prior to the allotment of equity shares,
under the Scheme

➢ The Shareholding pattern of the Company, post allotment of Equity Shares, under
the Scheme
How the Demerger of RIL’s Financial Services Business impacted its Share
Price?
Before the demerger, Reliance Industries Limited (RIL) encompassed the value of both its
traditional oil-to-telecom businesses and its budding financial services segment under one
umbrella. This structure meant that RIL’s share price inherently represented the combined value
of these diverse operations. However, with the decision to demerge the financial services
business into a distinct entity, Jio Financial Services Limited (JFSL), a new narrative emerged
that captured the market’s attention.
The market anticipated the demerger to unlock significant value for both RIL and JFSL by
creating distinct growth opportunities in their respective domains. Investors expected JFSL to
tap into the rapidly expanding financial services market in India by leveraging the extensive
data analytics capabilities and vast customer base of RIL’s other businesses, such as Jio
(telecom) and Reliance Retail. This optimism regarding the future potential of JFSL spurred a
rally in RIL’s share price in the days leading up to the demerger. On July 19, 2023, RIL’s share
price hit a 52-week high of ₹2,856, reflecting heightened investor confidence in the strategic
move.
Following the demerger, however, the dynamics shifted. With JFSL now operating as a separate
entity, RIL’s post-demerger valuation adjusted to reflect only the worth of its core businesses—
namely oil, gas, and telecom—excluding the financial services segment. On July 20, 2023, RIL
shareholders were allocated JFSL shares as part of the restructuring process. Stock exchanges
conducted a special trading session to determine the revised share prices of both companies
post-demerger.
As a result, RIL’s share price (excluding JFSL) settled at ₹2,580, marking a 9.2% decline from
its pre-demerger closing price of ₹2,856 on July 19. This adjustment was a natural outcome, as
the separation of JFSL reduced RIL’s intrinsic value by the worth of the financial services
business. Meanwhile, JFSL debuted with a post-demerger share price of ₹261.85, effectively
bridging the gap between RIL’s pre- and post-demerger valuations.
The market adjustment underscored the reality that RIL’s share price now reflected only the
performance and valuation of its core businesses, while JFSL embarked on its independent
journey as a financial services powerhouse.

How Jio Financial Services is Transforming India’s Financial Sector?

The demerger of Reliance Industries’ financial services arm marked a pivotal moment in India’s
financial landscape, giving rise to Jio Financial Services Limited (JFSL) as an independent
entity. This strategic move has set the stage for a profound transformation in the way financial
services are delivered in India, leveraging cutting-edge technology and customer-centric
innovation to meet the evolving needs of consumers and businesses.
JFSL has positioned itself as a trailblazer in India’s digital financial ecosystem by offering a
comprehensive suite of products and services. These include payment processing, lending
solutions, insurance products, and wealth management services, catering to a broad spectrum
of customer segments such as individuals, small businesses, and merchants. What sets JFSL
apart from traditional financial service providers is its ability to leverage Reliance’s massive
ecosystem, including the extensive customer base of Jio telecom (over 450 million subscribers)
and Reliance Retail’s network of 18,000+ stores.
This ecosystem provides JFSL with unparalleled insights into customer behavior, preferences,
and financial needs, enabling it to deliver personalized, affordable, and innovative solutions.
For example, JFSL uses advanced data analytics and artificial intelligence to offer customized
products like instant digital loans, on-demand insurance policies, and tailored investment plans.
This customer-first approach not only enhances user experience but also ensures accessibility
to financial products, even for underbanked and underserved communities.
The separation of JFSL from RIL has allowed both entities to focus more effectively on their
respective domains. For JFSL, operating as a standalone entity facilitates the attraction of
specialized investors, strategic partners, and stakeholders who are exclusively interested in the
financial services sector. This independence also provides JFSL with the agility to innovate,
expand its offerings, and adapt to market dynamics without being overshadowed by RIL’s core
operations.
JFSL’s ambitious plans are driven by a highly capable leadership team and a vision to become
a dominant force in India’s financial industry. By harnessing the synergies of data,
digitalization, and its vast customer ecosystem, JFSL is well-positioned to generate sustainable
growth and create value for its customers, partners, and shareholders alike.
The establishment of JFSL marks a significant leap forward in India’s journey toward a more
digitized and inclusive financial system. It epitomizes the convergence of technology and
finance, introducing a new era where customers can access secure, convenient, and innovative
financial solutions. By addressing the gaps in financial accessibility and affordability, JFSL is
not only contributing to its own growth but also playing a vital role in shaping the future of
India’s financial sector.
This transformation underscores the broader vision of Reliance Industries: to drive innovation
across diverse industries while empowering specialized entities like JFSL to thrive as leaders
in their respective fields.

Demerger
The Indian financial services sector is poised to undergo a digital transformation. The sector
presents a large, under penetrated and growing addressable market, especially for retail and
small-business focused product categories. JFSL and its subsidiaries (“JFS”) will leverage the
technology capability of Reliance and focus on digital delivery of financial products to
democratize financial services access for 1.4 billion Indians.
Reliance has been developing and fostering a vibrant digital led-financial services platform
through various digital applications. Reliance has developed best-in class applications having
high customer engagement metrics and differentiated value propositions in their respective
categories. The current footprint touches more than 20 million consumers. JFS plans to launch
consumer and merchant lending business based on proprietary data analytics to complement
and supplement the traditional credit bureau-based underwriting. JFS will continue to evaluate
organic growth, joint-venture partnerships as well as inorganic opportunities in insurance, asset
management and digital broking segments. JFS will build a business of scale across attractive
consumer segments to create value for every stakeholder. This coupled with a strong capital
base and unparalleled digital infrastructure capabilities would enable JFS to offer a
differentiated value proposition for its customers. JFS will also onboard an experienced
management team and adopt best-in-class governance and risk management practices across
verticals to create one of India’s leading financial services enterprises.
• RIL shareholders will get shares on a 1:1 basis in JFSL (to be listed) enabling upfront
value unlocking
• JFS to enable shareholder participation from inception in an attractive, fully digital
financial services platform, that is well-capitalized to tap the high growth financial
services business
• Flexible structure for JFS to partner with strategic or financial investors with enhanced
strategic focus to support the company's growth drivers
Morgan Stanley India Company Private Ltd and Citigroup Global Markets India Private Ltd
have provided a fairness opinion on the entitlement ratio recommended by KPMG Valuation
Services LLP (Registered Valuer). Citi, Morgan Stanley and Goldman Sachs are acting as
financial advisors and Khaitan & Co is acting as legal advisor in relation to the proposed
transaction.

Problem Identification in the Jio Financial Services Demergervvi

1. Complex Corporate Structure and Financial Transparency
The multi-layered and intricate corporate structure of Reliance Industries Limited (RIL) creates
challenges in financial reporting and transparency. This complexity makes it difficult for
stakeholders to trace fund movements and assess the financial health of the company, raising
concerns about clarity, trustworthiness, and effective management of resources.
2. Corporate Governance and Related Party Transactions
Weak governance mechanisms and the potential for non-arm’s-length related party transactions
present significant risks. These issues, stemming from the complicated structure, could lead to
conflicts of interest, financial impropriety, and regulatory scrutiny, undermining investor
confidence and ethical standards.
3. Risk Management and Regulatory Compliance
The intricacy of the corporate structure complicates effective risk management and adherence
to regulatory requirements. This raises vulnerabilities to financial, operational, and compliance
risks, which could result in penalties, legal challenges, and reputational damage if not
addressed appropriately.
4. Capital Allocation and Strategic Planning
Decision-making related to investment and resource allocation is hindered by the complex
structure, leading to inefficiencies. This limits the company’s ability to pursue growth
opportunities and hampers the execution of clear and coherent strategic plans, which are
essential for long-term competitiveness and sustainability.
5. Investor Relations and Financial Reporting
Ineffective communication with investors and stakeholders, coupled with challenges in
ensuring accurate and transparent financial reporting, erodes trust and credibility. Poor
stakeholder engagement and questionable reporting practices can result in reputational damage
and decreased market valuation.
Consolidated Insights : The demerger of Jio Financial Services highlights the need for
simplifying corporate structures, enhancing governance, improving risk management, ensuring
transparency in financial reporting, and strengthening stakeholder communication. Addressing
these challenges is critical to unlocking growth potential, maintaining investor confidence, and
achieving sustainable success.

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