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Largest Indian corporate merger

Oommen A. Ninan

Boards approve Reliance Industries, Reliance Petroleum merger


One RIL share for 16 RPL shares recommended

Largest refining capacity in the world




Mukesh D. Ambani

MUMBAI: The boards of directors of Reliance Industries Ltd. (RIL) and Reliance Petroleum Ltd. (RPL) on Monday approved RPL’s merger with RIL, subject to necessary approvals.

The exchange ratio recommended by both boards is one share of RIL for every 16 shares of RPL. The appointed date of merger is April 1.

RIL will issue 6.92 crore new shares, thereby increasing its equity capital to Rs. 1,643 crore.

Commenting on the merger, Reliance Industries Chairman and Managing Director Mukesh Ambani said, “This merger follows Reliance Industries’ philosophy of creating enduring value for all our shareholders. It is a significant step in our goal to be among the largest global operations.”

The merger is the country’s largest ever corporate merger and post-merger RIL will have 3.7 million shareholders.

The merger will unlock significant operational and financial synergies that exist between the two companies. It creates a platform for value-enhancing growth and reinforces RIL’s position as an integrated global energy company.

— PHOTO: AFP

GIGANTIC: A panoramic view of Reliance Industries’ refinery at Jamnagar in Gujarat.

EPS accretive

“The merger will enhance value for shareholders of both companies. The merger is EPS accretive for RIL. Through this merger, RIL consolidates a world-class, complex refinery with minimal residual project risk, while complementing RIL’s product range. There will be further gains from reduced operating costs arising from synergies of a combined operation. The merger is expected to reduce the earnings volatility for RPL shareholders and allows them to participate in the full energy value chain of RIL,” said RIL Chief Financial Officer Alok Agarwal, while addressing a press conference here. The merger would result in operating two of the world’s largest, most complex refineries, owning 1.24 million barrels a day of crude processing capacity, the largest refining capacity at any single location in the world and emerging as the world’s fifth largest producer of polypropylene

Promoter holding

RIL would cancel its holding in RPL and no fresh treasury stock would be created, Mr. Agarwal added. Based on the recommended merger ratio, RIL will issue 6.92 crore new equity shares to the existing shareholders of RPL.

This will result in a 4.4-per cent increase in the equity base from Rs. 1,574 crore shares to Rs. 1,643 crore. Consequently, the promoter holding in RIL will reduce from 49 per cent to 47 per cent.

Following the merger approval, international rating agencies Standard &Poor’s and Moodys have reaffirmed the ratings of the international debt instruments of RIL as BBB and Baa2, respectively.

Crisil has reaffirmed its ratings of ‘AAA/Stable/P1+’on the domestic debt instruments of RIL and ‘P1+’on the bank facilities of RPL.

PTI reports:

Chevron to offload stake

RIL said it would buy back U.S. energy major Chevron’s five per cent stake in RPl for Rs. 1,350 crore at Rs. 60 a share.

“The shares will be bought at Rs 60 a share, as per the agreement,” Mr. Agarwal said. Chevron had acquired 22.50 crore shares in RPL as part of an equity investment agreement with RIL in April 2006. As per the deal, RPL and Chevron were to enter into agreements on crude supply and product offtake. On executing these agreements and other pacts, Chevron was to purchase an additional 24 per cent stake in RPL from RIL.

The equity investment agreement also provided that, in case these agreements were not executed, Chevron would sell and RIL shall buy the former’s five per cent holding in RPL. “We are going to exercise that right to buy the shares,” Mr. Agarwal said, adding that RIL would continue to have its ongoing business relations with Chevron. The all-share merger deal valued at about Rs. 8,500 crore between the two Mukesh Ambani group firms, RIL and RPL, has become probably the 10th-biggest ever for the country and the first billion-dollar deal this year.

Billion dollar deal

The new RIL shares to be issued as part of the merger would be worth Rs. 8,478 crore (about $1.69 billion) at the current market price.

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