Reliance Nat falls 28 on R-Power deal

The companies,both controlled by Indian billionaire Anil Ambani,said on Sunday Reliance Natural Resources RNRL shareholders would receive one Reliance Power share for every four they hold.

Reliance Natural lost a May ruling by India8217;s highest court in a gas supply dispute with Reliance Industries,controlled by Anil8217;s elder brother,Mukesh Ambani,the world8217;s fourth-richest man.

Analysts say there was no reason for Reliance Natural to exist independently following the court8217;s verdict as it would not receive gas at a cheaper rate than the government-approved price.

The merger was a given,it was just a matter of time,said Sonam Udasi,head of research at IDBI Capital.

RNRL was just a shell company,and after the court verdict,it couldn8217;t have sold gas at a lower price,so it had to be absorbed,he said.

Based on Friday8217;s closing price of Reliance Power and the number of outstanding shares of Reliance Natural,the deal values Reliance Natural at about 1.5 billion,or about 43.80 rupees a share,compared with its closing price of 63.65 rupees on Friday,according to Reuters calculations.

By 0609 GMT,shares in Reliance Natural were down 27.3 percent at 46.25 rupees,after falling to 45.50,their lowest since May 21. Reliance Power was up 2.5 percent at 179.60 rupees,after climbing to 189.80,its highest in more than a year.

About 5.6 million shares were traded in Reliance Power,more than double the stock8217;s average trading volume over the past 30 days. About 10.9 million shares of Reliance Natural were traded versus with their 30-day average trading volume of 12.9 million.

Reliance Natural had wanted Reliance Industries to honour a private deal between the brothers,struck when the Reliance empire was split,to supply it with 28 million standard cubic metres of gas for 17 years at 2.34,about half the government-set price.

India8217;s Supreme Court ordered the companies to renegotiate the agreement at the government-approved price.

Late last month,Reliance Natural and Reliance Industries said they signed a revised gas supply agreement,but did not disclose details.

The gas is critical for Anil Ambani8217;s power business,including projects being built by Reliance Power. Reliance Power went public in early 2008 in a 2.9 billion IPO 8212; India8217;s biggest 8212; but has never risen above its issue price.

RNRL8217;s share in CBM coal-bed methane blocks,and proposed coal supply logistics and shipping business plans,are still nascent and will not contribute materially to earnings of the merged entity in the medium term,JPMorgan analysts said in a note. The merger would dilute earnings at Reliance Power,the note said.

Reliance Industries operates the country8217;s biggest gas find,in the D6 block of the Krishna Godavari basin off India8217;s east coast. The government determines who gets the gas from the field and at what price.