Reliance Creates Biggest Refining Operations
MUMBAI Reliance Industries, India’s largest listed firm, said it is to absorb its 70 per cent-owned Reliance Petroleum unit through a share offer, creating the world’s largest refining complex.
Combining operations will cut costs, Reliance said in a statement, adding the move would boost earnings from year one, at a time when world crude oil prices have slumped 71 per cent since hitting a record high last July.
Billionaire Mukesh Ambani’s Reliance Industries will issue 1 share for every 16 held in the unit, or 69.2 million shares worth Rs87.5 billion ($1.7 billion) at Friday’s close.
“This merger is about size. We aimed to create a larger integrated energy major that can take on projects much larger than before,” Chief Financial Officer Alok Agarwal told a news conference.
“Reliance gets a consolidated asset that is virtually ready at minimum project risk, while Reliance Petro shareholders get to participate in Reliance’s upstream product portfolio.”
Analysts said the move would boost Reliance’s financial muscle.
“We expect the proposed merger to further enhance RIL’s global scale of integrated production facilities and strong competitive position in petrochemicals and oil refining,” Standard & Poor’s said in a statement.
Although the company was exposed to higher debt and there was profit pressure due to a sharp downturn in commodities and oil refining, there was no immediate threat to Reliance’s corporate credit rating, it said.
Reliance Petroleum commissioned its 580,000 bpd refinery in December, located next to Reliance Industries’ 660,000 bpd refinery in Jamnagar on India’s west coast.
The combined firm would have refining capacity of 1.24 million barrels per day (bpd), ranking it ahead of the previous biggest refinery, Venezuelan state-run PDVSA’s Amuay/Cardon complex.
Shares in both companies fell on Monday, with Reliance Industries down more than 4 per cent as the swap ratio gave a slight edge to Reliance Petroleum shareholders, traders said.
Reliance Industries said the move should boost its earnings potential without seriously diluting its capital.
Reliance said it would cancel the Reliance Petroleum shares it already owned on absorption. It is also buying Chevron Corp’s 5 per cent in Reliance Petroleum for Rs13.5 billion ($261 million) at the original price of Rs60 a share.
This would give Reliance the unit’s new $6 billion refinery for a fraction of the price on its books, with its equity capital rising to Rs16.43 billion from Rs15.73 billion. Reliance Petroleum’s capital stands at Rs45 billion, Thomson Reuters data showed.
The amalgamation will result in a 4 per cent dilution at Reliance Industries that will be shared equally between founders and other shareholders, Agarwal said. The founders’ stake will fall to 47 per cent from 49 per cent.
“It ensures the increase in equity is kept to the bare minimum to boost all ratios such as EPS and return on equity,” Ambareesh Baliga, vice-president at Karvy Stock Broking, said.
Combining operations will cut costs, Reliance said in a statement, adding the move would boost earnings from year one, at a time when world crude oil prices have slumped 71 per cent since hitting a record high last July.
Billionaire Mukesh Ambani’s Reliance Industries will issue 1 share for every 16 held in the unit, or 69.2 million shares worth Rs87.5 billion ($1.7 billion) at Friday’s close.
“This merger is about size. We aimed to create a larger integrated energy major that can take on projects much larger than before,” Chief Financial Officer Alok Agarwal told a news conference.
“Reliance gets a consolidated asset that is virtually ready at minimum project risk, while Reliance Petro shareholders get to participate in Reliance’s upstream product portfolio.”
Analysts said the move would boost Reliance’s financial muscle.
“We expect the proposed merger to further enhance RIL’s global scale of integrated production facilities and strong competitive position in petrochemicals and oil refining,” Standard & Poor’s said in a statement.
Although the company was exposed to higher debt and there was profit pressure due to a sharp downturn in commodities and oil refining, there was no immediate threat to Reliance’s corporate credit rating, it said.
Reliance Petroleum commissioned its 580,000 bpd refinery in December, located next to Reliance Industries’ 660,000 bpd refinery in Jamnagar on India’s west coast.
The combined firm would have refining capacity of 1.24 million barrels per day (bpd), ranking it ahead of the previous biggest refinery, Venezuelan state-run PDVSA’s Amuay/Cardon complex.
Shares in both companies fell on Monday, with Reliance Industries down more than 4 per cent as the swap ratio gave a slight edge to Reliance Petroleum shareholders, traders said.
Reliance Industries said the move should boost its earnings potential without seriously diluting its capital.
Reliance said it would cancel the Reliance Petroleum shares it already owned on absorption. It is also buying Chevron Corp’s 5 per cent in Reliance Petroleum for Rs13.5 billion ($261 million) at the original price of Rs60 a share.
This would give Reliance the unit’s new $6 billion refinery for a fraction of the price on its books, with its equity capital rising to Rs16.43 billion from Rs15.73 billion. Reliance Petroleum’s capital stands at Rs45 billion, Thomson Reuters data showed.
The amalgamation will result in a 4 per cent dilution at Reliance Industries that will be shared equally between founders and other shareholders, Agarwal said. The founders’ stake will fall to 47 per cent from 49 per cent.
“It ensures the increase in equity is kept to the bare minimum to boost all ratios such as EPS and return on equity,” Ambareesh Baliga, vice-president at Karvy Stock Broking, said.
quoted from: OMAN TRIBUNE
