Reliance merger forms energy major


Reliance Industries managing director Anil Ambani

Staff and wire reports

MUMBAI, India -- India's leading petrochemical company Reliance Industries Ltd (RIL) is taking over separately-listed group company Reliance Petroleum Ltd, the country's largest private sector refiner.

The powerful Reliance group announced the merger of its two biggest companies Sunday, with both boards giving unanimous approval to the deal.

The market reacted to news of the merger Monday by sending Reliance Industries shares down 2.86 percent on the Mumbai BSE to 312.95 rupees.

The stock touched 339 rupees at one stage Monday, substantially above Friday's close of 322.15 rupees.

Reliance said the merger would create India's first fully-integrated energy company and put it among the world's top 30 energy firms by profits.

It said the combined entity would have 3.5 million shareholders -- probably the largest number for a company in the world.

Its combined market capitalization will be just over $10 billion, making it the second-most valuable company in India behind Unilever's Indian subsidiary Hindustan Lever.

Retrospective to April 2001

"We believe size, scale and integration are the key success factors in the global energy industry," Reliance Industries' managing director Anil Ambani told a news conference to announce the merger, according to Reuters news agency.

Under the merger terms, Reliance Petroleum shareholders will get one RIL share for every 11 shares they hold. The merger will be retrospective from April 1, 2001.

The integration of the two companies would create "an enterprise of truly global scale, with enhanced financial strength and resources" to pursue growth and acquisitions, Ambani said in a statement.

Reliance said that based on results for RIL and RPL for the first nine months of the 2001-02 financial year, the merged entity would have sales of $11.8 billion, operating profit of $1.8 billion and a net profit of $800 million, making it India's first private sector company of global size.

The Ambani family, founders of Reliance, will hold 34 percent of the merged entity.

The Reliance group was founded four decades ago by Anil Ambani's father Dhirubhai Ambani, now Reliance's chairman.

It started off trading textiles, but rapidly integrated into making textiles, yarn and other polymers and fiber intermediates before moving into refining.

Today, Reliance is on of India's largest conglomerate with interests in power, oil and gas exploration, telecommunications and information technology.

Acquisition targets

Analysts lauded the move, saying it will bring the firm's business model in line with giants like Exxon Mobil, BP, and Royal Dutch/Shell.

"The merger is positive for Reliance because it brings all businesses under one head, protects them against fluctuations in individual sectors and makes it easy for the company to raise money to buy the state-run refiners," Sunidhi Consultancy analyst Karthik Ramakrishnan told Reuters news agency.

Reliance is seen as a major contender for government stakes in state-run refiners Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd. The firms are likely to be privatized later this year.

Reliance is also one of the bidders for a 26 percent stake in Indian Petrochemicals Corporation Ltd., which the government is selling.

RIL owns 34 percent of power utility BSES Ltd, which is bidding for collapsed U.S. group Enron's stake in the $2.9-billion Dabhol power project in western India.

The firm also has 30 percent of a potentially lucrative oil and gas exploration venture with state-run Oil and Natural Gas Corporation and BG Plc.

Another of its investments is a 45 percent stake in Reliance Infocom, the telecoms and information technology arm of the group.

Reliance Infocom is building a fibre optic network linking 115 cities at a cost of about $5 billion.