India’s most valuable company, the Rs 1,99,000 crore Reliance Industries Ltd (RIL), is all set to merge its group firm, the Rs 34,000 crore Reliance Petroleum Ltd (RPL), with itself. This will make the merged entity a Rs 233,000 crore giant that would be worth 1.2 times ONGC and Indian Oil combined.
In a statement to the Bombay Stock Exchange, RIL said its board would meet on March 2 to consider the plan. RIL owns 70.38 per cent stake in RPL. The rest is widely held, including those by financial institutions and the public.
The combined production of the merged entity would be 1.24 million barrels of oil per day, which would make it one of the top 10 non-state owned refineries in the world. RIL officials did not say how the merger would take place but market sources said the amalgamation is most likely to be a “vanilla merger” through an all-share deal without any cash component.
This would be the second merger between RIL and RPL. In 1999, RPL had set up Reliance Group’s first refinery at Jamnagar. In 2002, the company was merged with its parent RIL.
In 2006, a new company with the same name ––RPL –– was created to set up an export-oriented refinery at Jamnagar special economic zone (SEZ), adjacent to the old unit.
This company was commissioned in December 2008, at a time when demand for petroleum products in global markets had flattened.
Reacting to the announcement, commerce ministry officials said they did not see any immediate issues with the merger proposal. “The merger will not affect the SEZ unit status of RPL,” commerce secretary G.K. Pillai said.
“We do not see any legal hurdles with it but we need to study the proposal,” said petroleum minister Murli Deora.
Company sources said it would be a tax neutral merger. HT spoke to taxation experts who explained that as a result of the global meltdown and the slowdown in growth of petroleum products globally, RIL has been keen to sell its refinery production in the domestic market. However, because of the export-oriented status of RIL’s Jamnagar refinery, it cannot sell petroleum products in the country till March 2010.
RPL’s SEZ refinery does not have any such restriction and can sell in the domestic markets. “So, this merger will allow RIL to sell products in the domestic market while claiming the tax benefits at the same time,” said a taxation expert.