RIL-RPL merger to create petro giant

Reliance Petroleum Ltd (RPL) is once again merging with its parent firm Reliance Industries Ltd (RIL). The boards of RIL and RPL will meet on March 2 to consider....

Written by ENS Economic Bureau | Mumbai | Published: February 28, 2009 1:26:13 am

Reliance Petroleum Ltd (RPL) is once again merging with its parent firm Reliance Industries Ltd (RIL). The boards of RIL and RPL will meet on March 2 to consider a merger of the two companies that will create a giant with a place among the world’s biggest non-state petroleum companies.

This would be the second merger between RIL and RPL. RPL (the first refinery project) had merged with RIL in 2002 to consolidate its operations. However,later in May 2006,RPL,which was revived to set up its second mega refinery complex,was listed on the bourses as a separate entity after an initial public offering (IPO) that raised over Rs 8,100 crore.

Seven year after its earlier merger,Mukesh Ambani is going for another merger to create a giant that will consolidate its position as the largest private sector firm in terms of sales and profits. RIL is the country’s most valued company with a market capitalisation of Rs 1,99,094 crore. The combined market value of the two companies currently stands at about Rs 2,33,384 crore.

RPL and RIL boards are expected to announce a share swap ratio next week. RIL’s 70.38 per cent holding in RPL will get extinguished post merger. Chevron of the US holds 5 per cent in RPL. “There are plenty of synergies for RIL and RPL in the case of an amalgamation. It is a win-win situation for the shareholders of both the companies,” said Harjeet Sethi,research analyst,Almondz Securities. “The swap ratio could be between 1 share of RIL for very 15 or 18 shares of RPL,” he said. “The ratio could be 1:16 or 1:17,” said Hitesh Agarwal,head of research at Angel Broking.

Ahead of the merger announcement,RIL shares closed 1.97 per cent lower at Rs 1,265.05 on the BSE and RPL settled at Rs 76.20,down by 1.23 per cent.

In the 2002 merger,RIL had a 62 per cent shareholding in RPL. Of this 28 per cent directly held by the company was cancelled. The 36 per cent RPL shares held by Reliance Investments Holding Limited,a 100 per cent subsidiary of RIL and RIL associates,another holding company was put in a trust. This constituted 12 per cent of RIL’s equity post merger at that time.

RPL,currently a subsidiary of RIL,set up a greenfield petroleum refinery and polypropylene plant in a special economic zone at Jamnagar in Gujarat. With an annual crude processing capacity of 580,000 barrels per stream day (BPSD),RPL will be the sixth largest refinery in the world. RPL invested Rs 26,217 crore to set up the refinery complex till December 31,2008.

RPL successfully commenced operations at its complex refinery during the quarter ended December 2008 and it started its crude processing on December 25,2008. RPL started despatch of its refinery products in January 2009. “The initial phase of production has achieved stability. Commissioning activities are nearing completion at several of the secondary processing units. Several support units and utilities such as water,air,nitrogen,steam and power required for the refinery are being operated successfully,” RPL had announced last month.

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