Apr 17, 2000|
RIL–RPL merger: Is it possible?
The most integrated petrochemical company Reliance Industries (RIL) could further backward integrate into an oil & petrochemical conglomerate, if the Ambani’s were to merge Reliance Industries with Reliance Petroleum (RPL). This is a pure hypothecation and no such announcement has come from the group.
RPL would maximise the production of petrochemical inputs – naphtha (2.31 m tonnes), reformate (2.51 m tonnes) and propylene (0.57 m tonnes). For RIL, naphtha is the by far the most important raw material. Naphtha is cracked into ethylene, propylene and butene the petrochemical building blocks and one tonne of naphtha also yields almost 2.5 tonnes of paraxylene which is the core raw material for polyester fibres.
The total consumption of RPL’s products by RIL would amount to nearly 25% of RPL’s sales. On naphtha alone RPL, would end up paying a sales tax of anywhere between Rs 2500 m to Rs 3000 m (the sales tax on naphtha is 16%) in a full year of commercial production. Thus tax savings of Rs 2.5 bn to Rs 3 bn could be substantial if the RPL–RIL merger were to come through.
What could be the possible merger ratio? Some time back RPL made a private placement of 5% of its equity to five crude supplying companies (Kuwait Petroleum, National Iranian Oil, Penex of Mexico, Abu Dhabi National Oil and Petroleum Development Authority Venezuela) at a price of Rs.90/- per share. This tie–up included a long–term purchase contract of crude oil.
If one were to take this as an indicative price for RPL and the buyback offer price of Rs 303 an indicative price for RIL, the swap ratio could be anywhere between 3 to 3.5 shares of RIL in exchange of 1 share of RPL. At present while RIL’s outstanding shares stand at 1.05 bn, RPL’s outstanding shares work out to 4.23 bn as at March 31, 2000. The merged entity could end up having a massive turnover of around Rs 400 bn. Now match that for size.
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