3/2/09

RIL-RPL merger to create largest refining capacity

. 3/2/09

The merger between Reliance Industries and Reliance Petroleum will give the benefit of combined operating profitability to the merged entity, while tax benefits through depreciation would be minimal as the two units will maintain independent accounts.

The mammoth entity, which will be the world’s largest refining capacity at a single location and the fifth largest polypropelene manufacturer, will also be able to raise large funds, say industry experts.

While Reliance Industries has a 660,000-barrels-a-day refinery at Jamnagar in Gujarat, Reliance Petroleum’s 580,000 barrel-a-day refinery is adjacent to its parent company.

“Since the two firms (RIL and RPL) will continue to function as separate entities as far as their accounts are concerned, the two companies will have their independent tax benefits. This merger is not about tax benefits,” CFO Alok Agarwal told reporters.

The merger will enable efficient sourcing of crude from anywhere in the world and give greater flexibility in operational planning, said Mr Agarwal.

Earlier, the RIL board approved a scheme of amalgamation of Reliance Petroleum with the company under provisions of Sections 391 to 394 of the Companies Act of 1956. Under the scheme, which is effective from April 1, 2008, shareholders of RPL will get 1 fully paid equity share of Rs 10 each of Reliance Industries for every 16 fully paid equity shares of RPL held by them.

The merger follows Reliance Industries’ philosophy of creating enduring value for all our stakeholders, chairman Mukesh Ambani said after the board approval. “It is a significant step in our goal to be among the largest global corporations,” Mr Ambani added.

The merger between RIL and RPL will bring down the shareholding of promoters in the combined entity to 47% from 49%, while the retail shareholding will go up to 19% from 16.1%.

It will however reduce the shareholding of institutional investors, while banks and mutual funds will get a higher share in the merged entity.

The RIL board which approved the merger on Monday, said it will issue 6.92 crore equity shares to RPL shareholders, which will increase the equity capital to Rs 1,643 crore. “The merger will reduce the earning volatility of RPL shareholders and allow them to participate in the full energy value chain of RIL,” RIL CFO Alok Agarwal told reporters.

The merger was welcomed by ratings firm Crisil which affirmed a AAA rating for RIL post the merger. The advisors on the merger swap valuation was done y Ernst & Young and Morgan Stanley, while the tax advisors were PriceWaterhouseCoopers.

Transaction advisors were JM Financial an Kotak Mahindra, while fairness opinion for RIL was Meryll Lynch and for RPL it was Citigroup Global. The legal advisors for the deal were Amarchand Mangaldas and Suresh A Shroff.





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