Jio Platforms IPO or Vertical Split? Jefferies Predicts Both Options

Ever since Jio Financial Services Ltd (JFSL) was listed in July 2023, investors have been curious about the potential listing of Reliance Industries Ltd’s (RIL) telecom arm, Jio Platforms Ltd.

Listing Options: Vertical Split vs. IPO

The big question is whether Jio Platforms will be listed through a vertical split or an Initial Public Offering (IPO). A vertical split would mirror RIL’s shareholding pattern, meaning if a shareholder has 100 shares of RIL, they would get 100 shares of Jio Platforms when listed. RIL’s promoters have a 50% stake in the company, and RIL has a 66% stake in Jio Platforms. With a vertical split, RIL’s promoters would own about 33% directly in Jio Platforms.

RIL chose a vertical split for JFSL, where RIL’s promoters gained a 46% stake in JFSL, which has since increased to 47%. Jefferies India’s analysts expect a similar approach for Jio Platforms. However, this situation is more complex.

Challenges with a Vertical Split

While JFSL’s split gave RIL’s promoters close to a majority stake, the same split would only give them 33% in Jio Platforms. Jefferies suggests they could raise their stake in Jio after the listing to approach 51%, as they did with JFSL.

Cost of Increasing Stake

Raising their stake in Jio Platforms to 51% would be costly. For JFSL, the cost was about ₹10,000 crore, manageable for the promoters. However, Jio Platforms’ market value could be around ₹10 trillion, making an 18% stake increase cost about ₹1.8 trillion, which is 18% of the promoters’ net worth.

Considering an IPO

The other option is a public issue, where RIL would maintain its 66% shareholding, giving the promoters more control. Although it might attract a holding-company discount of around 20%, valuing RIL about 5% less than a vertical split, it’s a small price for retaining control.

Challenges of a Public Issue

Jefferies notes it could be hard to fill the retail investor quota due to the large offering size. However, the success of LIC’s ₹21,000 crore IPO, which saw its retail portion oversubscribed, indicates a possible retail interest for Jio Platforms. RIL might manage the issue or use innovative options like partly paid shares or discounts for existing shareholders.

While a vertical split might be preferred by investors, especially after the JFSL listing’s success, an IPO is also a viable option for retaining control. Investors should not rule out any possibility.