Creating the largest refining capacity at any single location in the world,the boards of directors of Reliance Industries Limited (RIL) and Reliance Petroleum Limited (RPL) on Monday unanimously approved RPLs merger with RIL. The exchange ratio recommended by both boards is one share of RIL for every 16 shares of RPL,leading to a dilution in equity capital to Rs 1,643 crore.
Commenting on the merger,Reliance Industries chairman and managing director Mukesh Ambani said: This merger follows Reliance Industries philosophy of creating enduring value for all our stakeholders. It is a significant step in our goal to be among the largest global corporations.
RIL,which holds 70.3 per cent stake in RPL,will cancel its holding in the company. Based on the recommended merger ratio,RIL will issue 6.92 crore new equity shares to the existing shareholders of RPL. This will result in a 4.4 per cent increase in equity base from Rs 1,574 crore shares to Rs 1,643 crore. Consequently,the promoter holding in RIL will reduce from 49.0 per cent to 47.0 per cent.
The merger will unlock significant operational and financial synergies that exist between RIL and RPL. It creates a platform for value-enhancing growth and reinforces RILs position as an integrated global energy company. The merger will enhance value for shareholders of both companies, said RIL chief financial officer Alok Agarwal. The merger is EPS (earnings per share) accretive for RIL. Through this merger,RIL consolidates a world-class,complex refinery with minimal residual project risk,while complementing RILs product range. There will be further gains from reduced operating costs arising from synergies of a combined operation, RIL said.
Reliance gets a consolidated asset that is virtually ready at minimum project risk,while Reliance Petroleum shareholders get to participate in Reliances upstream product portfolio, Agarwal said. The merger is expected to reduce the earnings volatility for RPL shareholders and allows them to participate in the full energy value chain of RIL.
The merger will result in RIL operating two of the worlds largest,most complex refineries with 1.24 million barrels per day (mpbd) of crude processing capacity,and also the largest refining capacity at any single location in the world. The appointed date of merger of RPL with RIL is April 1,2008. This merger is about size. We aimed to create a larger integrated energy major that can take on projects much larger than before, added Agarwal.
RIL shares,the heaviest in the Sensex group,closed down 3.15 per cent at Rs 1,225.15 after plunging more than four per cent during intra-day trade. Reliance Petroleum also closed lower by 1.38 per cent at Rs 75.15 after plummeting over 8 per cent during the day. Analysts said the share swap ratio of 16:1 was slightly in RPLs advantage.