RIL makes open offer for BSES at Rs 234 per share

BSES, with assets of over Rs 4,000 crore, generates and supplies power to much of Bombay metropolis and its annual turnover is Rs 2,349 crore and made a net profit of Rs 270 crore for the fiscal ended March 1999. When contacted, BSES officials were also not too happy with the price. “The open offer price of Rs 234 per share set by Reliance for buying a 20 per cent stake of BSES is low and the bid will not be successful,” BSES chairman and managing director R V Shahi predicted on Friday. "This price is low and nobody would be interested," he added.

“I haven’t spoken to financial institutions yet but I feel they will not be interested either in offloading even at a higher price. This offer will not get them management control,” Shahi said.

Financial institutions are the biggest shareholders in BSES with a stake of about 35 per cent. Reliance and its group firms have over the years bought a 14 per cent stake in the firm. Says D Sengupta, chairman, General Insurance Corporation (GIC): “The offer has to be studied by a committee in a joint discussion before arriving at a decision… our holdings are driven by our investment policies and we have to ultimately keep the interests of the shareholders and policy holders in mind before deciding.”

Adds Anil Ambani, Managing Director of RIL,“The open offer for BSES represents a strategic step in our pursuit of attractive growth opportunities in the power sector. The offer reflects our commitment to development of the power sector, a core infrastructural area in line with national priorities.”

“We believe, this step is in the best interests of both companies, and will significantly, contribute to enhancement of overall shareholder value for shareholders of RIL and BSES,” he added. “The offer price represents the minimum 26-week price specified under Sebi regulations and the offer is likely to open in June 2000 and will remain open for 30 days as per Sebi guidelines,” a RIL statement said.

Acquisition of BSES would give a major thrust to Reliance’s ambitions in the power sector which is already setting up a 450 mw power plant in Patalganga in Maharashtra. For Reliance, acquisition of BSES makes strategic sense as the latter has made deep inroads into telecom and fibre optic business through its subsidiary, BSES Telecom apart from power business.

BSES officials say that part of its optic fibre network in Mumbai is ready and the company will have a tie-up with MTNL where it does not have a presence. BSES has also submitted along with National Power Grid of UK a bid for laying optic fibre network along with transmission lines of MSEB.

BSES Telecom is a Category B licensee for providing internet service in Mumbai and it has recently launched its net services in Mumbai branded Power Surf. By the end of first half of 1999-2000, the first phase of the optic fibre network linking all the 45 receiving stations of BSES was completed.

The company is now looking at to build bandwidth, and a fibre optic backbone to make that bandwidth available should be the first priority. This is something which BSES Telecom already possesses. Basically, the BSES venture into broadband will enable users access to speed up several times.

Besides, BSES Andhra Power which is setting up 210 MW project has tied up funds – debt and equity – and once the escrow is approved, the project will be able to achieve financial closure. BSES Kerala Power has already started generating power. BSES also holds license to distribute power in Orissa.

On the other hand, if RIL successfully completes the open offer, its total power capacity will go up to 8000 mw from the estimated 6000 mw. BSES’ total capacity is around 2000 mw. An RIL release said that the acquisition would result in the creation of new assets in the power sector, pooling of engineering, construction and management strengths, enhanced levels of fuel linkages. It will significantly help RIL’s plan to make a major foray into the power trading and derivatives market in addition to enhancing the geographical reach, the release added.

RIL has of late been making a lot of initiatives in the power sector. It has recently signed an agreement with Southern Energy Asia-Pacific Ltd (CEPA) to jointly develop a coal-based thermal power project at Hirma in Orissa. Besides, its is actively pursuing several independent powwr projects in the states of Tamil Nadu, Gujarat and Maharashtra.