Reliance to divest 13 p.c. stake in Reliance Petroleum

By Our Special Correspondent

MUMBAI, MARCH 20. Reliance Industries Ltd (RIL) today decided to offload up to 676.20 million shares representing 13 per cent of its equity in Reliance Petroleum Ltd. (RPL) to a strategic investor at an appropriate time.

This is stated by RIL in a notice to the Bombay Stock Exchange (BSE). RIL together with its subsidiaries/associates now holds around 64 per cent stake in RPL. While Indian financial institutions hold 10 per cent, GDRs, FIIs, NRIs account for seven per cent and the balance 19 per cent is with the public. RPL's current market capitalisation is about Rs. 27,000 crores or $6 billion.

The Union Budget 2001-02 has permitted international listings of listed Indian companies through GDRs or ADRs issued against a block of shares held by a listed parent company. This proposal enables RIL to proceed with its plans of divesting a part of its stake in RPL to unlock the value for the benefit of its shareholders. RIL has informed the stock exchanges that it proposes to divest in appropriate tranches up to 13 per cent of its equity in RPL in the international markets to strategic or financial investors thereby retaining a controlling 51 per cent stake and full management control.

For every one per cent equity stake in RPL divested, RIL will generate sales proceeds of about Rs. 250-300 crores even at current market prices. RIL's investment has been made at a cost price of below Rs. 20 per share. Accordingly, RIL will realise long term capital gains of about Rs. 150 crores for every one per cent equity stake in RPL divested based even on current market prices. These capital gains will translate into additional profits and EPS for RIL.

The benefits for RIL from this transaction will include realisation of substantial capital gains, generation of incremental cash resources to be reinvested for future growth in oil and gas and infocom without any cash calls on its own shareholders, lowering of the cost of the balance shareholding in RPL and unlocking of value from its RPL shareholding without impacting management control.

RPL will also benefit from this transaction. It will widen its international investor base (FIIs now hold less than 0.25 per cent of RPL), access to new markets for finance future growth opportunities in marketing, distribution, pipeline, storage and terminals, creation of a currency for financing acquisition opportunities in the future to achieve non linear growth and higher business profile from an international listing.

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