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Reliance: RPL unlocks value

May 24, 2001

Reliance Industries Ltd. (RIL) has been in the news over the past one month on the proposed global depository receipt (GDR) listing by Reliance Petroleum Ltd. (RPL). The proposal has been actively covered by the media and both the counters have run up since the announcement. The international offering is targeted towards strategic and financial investors. This is the first such offer for sale of shares by an Indian company in the international markets. RPL will not issue fresh equity of shares but existing promoters and minority shareholders will be provided the option to divest a part of their shareholding.

As per the proposal, shareholders wishing to participate in the offering will need to tender in their shares in demat form to an escrow account. The shares will remain with the escrow agency till March 31, 2002 or till completion of all tranches of the proposed offering, whichever is earlier.

RIL plans to offload 13% of its holding in RPL through this offering bringing down its stake to 51% in the petroleum company. The rise in price of the Reliance share from Rs 345 to the current Rs 379 seems to reflect the value that could be unlocked from the sale of stake in RPL.

Unlocking value
RPL shares outstandingnos. m 4,753.0
Proposed stake sale13.0%
Sale of sharesnos. m 617.9
CMP*Rs 54.2
Total realisationRs m 33,489.6
RIL shares outstandingnos. m 1,054.0
Gross realisation / share Rs 31.8
* Current market price

The sale will result in substantial capital gains for RIL. The monies accruing from the offering will be utilised for expansion of the oil & gas business and in funding Reliance Infocom's nation-wide optic fibre network. RIL in its interactions with the market has stated that the share of oil & gas in RIL's revenue is expected to increase from 3% currently to 10% by FY04. RIL has bid aggressively for blocks under the New Exploration Licensing Policy - II (NELP). As per reports it has bid for 15 of the 25 blocks on sale.

Reliance Infocom plans to establish a nation-wide footprint by setting up a 60,000 km broadband network connecting 115 Indian cities, which constitute more than 50% of India's GDP. The terabit network will serve as a backbone for the groups convergence activities and will also lease out bandwidth to other telecom service providers. The group believes the Indian Infocom marketsize will grow to Rs 1,000 bn by 2006.

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