Reliance Petroleum places 5% of its equity with oil companies - Views on News from Equitymaster

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  • Feb 7, 2000 - Reliance Petroleum places 5% of its equity with oil companies

Reliance Petroleum places 5% of its equity with oil companies

Feb 7, 2000

Reliance Petroleum (RPL) has made a private placement of 5% of its equity to five crude supplying companies at a price of Rs.90/- per share. This tie–up with Kuwait Petroleum, National Iranian Oil, Penex of Mexico, Abu Dhabi National Oil and Petroleum Development Authority Venezuela includes a long term purchase contract of crude oil. RPL has put in place a 27 million tonnes per annum (540,000 barrels per day) refinery which is the world’s largest grassroots refinery at Jamnagar (Gujarat). The refinery accounts for 25% of India’s refinery capacity.

The implication of the tie-up could be three fold. One it could enable Reliance to build a war chest for the takeover of integrated oil companies as and when the PSU disinvestment takes place. Second, it could enable the company to start building a market network at strategic locations itself. Reliance is already reported to have bought prime real estate in Mumbai and this could be used for this purpose.

Third, it would enable Reliance to source crude over the long term from well known and dependable suppliers (all the companies are national companies of their respective countries). While 50% of the supplies are in place, Reliance can enter into spot contracts for its balance 50% requirement depending on the movement of the international crude prices.

Market View:
Due to the complexity of its refinery as well as the fact that the company is poised to benefit from the impending deregulation of the Administered Pricing Mechanism, RPL has been rated as a buy by most analysts.

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