Merger of Reliance Industries, oil-exporting arm approved (Lead)

March 2nd, 2009 - 3:09 pm ICT by IANS  

Mumbai, March 2 (IANS) In one of India’s largest amalgamation deals, Reliance Petroleum will merge with its parent and the country’s biggest private company Reliance Industries in what the promoters say would create better synergies in the hydrocarbons space.
The boards of the two companies met here Monday to unanimously approve the merger in the ratio of one share of Reliance Industries for every 16 shares of Reliance Petroleum. The merger will be subject to necessary regulatory and legal approvals.

“This merger follows Reliance Industries’ philosophy of creating enduring value for all our stakeholders,” said group chairman Mukesh Ambani. “It is a significant step in our goal to be among the largest global companies.”

The merger, approved before the opening of Indian stock markets Monday, resulted in the shares of Reliance Industries commence trading at Rs.1,249, marginally lower than its previous close, while those of Reliance Petroleum opened higher at Rs.82, compared with Rs.76.20.

The merger will result in a combined crude oil processing capacity of 1.24 million barrels per day, making the joint entity’s refining capacity the largest in the world from a single location, the two companies said in a statement.

“We’ll have a much better cash utilisation than Reliance Petroleum would have had as a stand-alone refinery,” said Alok Agarwal, chief financial officer of Reliance Industries. “We’ll be able to offer as a buyer, a package which few refineries in the world will be able to do.”

The merger will also lead to Reliance Industries acquiring the 5-percent stake that US oil major Chevron holds in the company’s arm.

Reliance Industries holds a 70.38-percent stake in Reliance Petroleum, while Chevron holds 5 percent. The rest is widely held, including those by foreign funds, financial institutions and the public.

The promoters of Reliance Industries, which was founded by legendary industrialist, the late Dhirubhai Ambani, hold a 49.03 percent stake in the company as on Dec 31 last year.

Ernst and Young and Morgan Stanley were the valuation advisers for the deal that calls for Reliance Industries to issue 69.2 million new shares, resulting in a 4.4-percent increase in the company’s equity base.

The total number of shareholders will also swell to 3.7 million. As per data available with the Bombay Stock Exchange, Reliance Industries had 2.2 million shareholders as on Dec 31, while Reliance Petroleum had 2.15 million.

Reliance Petroleum, which started full-scale production from its unit at the port town of Jamnagar in Gujarat, is a 100 percent export-oriented unit. Officials at commerce ministry had already said that this status will not be lost after the merger.

On its own, Reliance Petroleum has an annual crude oil processing capacity of 580,000 barrels per day, making it the sixth largest refinery in the world. Its parent company figures on the Fortune Global 500 list.

The Reliance group, which has interests in areas like oil exploration, petrochemicals, life sciences and retail trade, says its petroleum complex at the port town of Jamnagar in Gujarat is the largest grassroots refinery in the world.

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