Mar 4, 2002|
RIL: Fails to induce excitement
The markets seem to have given their verdict on the amalgamation of the two Ambani group behemoths, Reliance Industries Ltd. (RIL) and Reliance Petroleum Ltd. (RPL). The RIL stock closed lower for the day. Markets are likely to be uncomfortable with the complex equity restructuring undertaken for the amalgamated company.
Under the approved proposal of the boards. RIL will cancel 28% of its shareholding in RPL bringing down its stake to 53% on the reduced capital base of Rs 3,745.4 m. The fresh holding is inclusive of the shares held by Reliance Industrial Investments Holding Ltd. (RIIHL) and other RIL associates. These two entities combined would represent 50.2% of reduced share capital of RPL.
On an amalgamation ratio of 1 share of RIL for every 11 shares in RPL, the outstanding shares in RIL will increase to 1,394.3 m. RIL has stated that the 12.2% share capital held by RIIHL & RIL associates in the amalgamated company is likely to be used for raising additional funding from the markets. The sale of stock could be to strategic or financial investors for meeting expansion plans in telecom, power and oil & gas.
The amalgamation is in line with global industry trends. All the top energy companies are integrated along the petroleum chain from exploration to petrochemicals. This is likely to offer RIL benefits arising from integration. The combined entity is likely to incur lower state and central indirect taxes, complexities of transferring pricing will become redundant. More importantly, with a larger balance sheet, the company can attempt at building world class capacities, acquiring assets in international markets, take higher risk for growth and reduce volatility in earnings. A look at the global majors indicates that upstream business generates a larger share of earnings. Consequently, we could see RIL become more aggressive on this front. However, upstream business is capital intensive with high risk, which could have made the amalgamation all the more imperative.
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