What is the rationale behind the merger? Is it to ensure better cash flow?
This merger is not about cash flows. RIL’s balance sheet is very conservatively leveraged. Our ratings have been AAA for at least 15 years. This merger is about size and creating a large, integrated energy major. We would now be one of the world’s largest energy companies. This gives us the ability to take on and execute projects much larger in size than ever before.
How did you arrive at the valuation?
The valuation takes future potential into account, book value and trading values of these companies. The day of the IPO, the swap ratio was at 16.4 or 16.5 to 1 for RIL, the day we decided on the merger it was 16.6. So despite the ups and downs in the market, the valuation has been pretty much the same over time.
What are the tax implications of this merger?
This merger is not about tax. The two entities have their own tax benefits, and they would continue that way. Despite the merger, their respective tax liabilities would remain with them. Depreciation for the SEZ refinery would be part of its tax returns. It would have its own taxation and depreciation benefits. There would be no additional benefit of depreciation to the merged entity.
What are the circumstances of Chevron Corp’s exit?
Chevron came in as a promoter during the RPL IPO. It subscribed to 5 per cent of the company, at the same price that everyone had taken, as an investment decision.
We had agreed initially, that over the next few years while we build the refinery, we would enter into agreement with them for crude buying by us and product placement by them. It was also a strategic investment to bolster the fact that we are working together and creating value.
Very, very recently we mutually agreed that we are no longer going to pursue the agreement. We had the option to buyback the shares at Rs 60 a share and that right has been exercised by us. We continue to have an ongoing business relationship with Chevron.
With Chevron moving out of the arrangement, what are the alternative arrangements for supply of crude?
As we approach the commissioning of the refineries, we need to ensure that we have enough crude lined up for the refineries. Just for RPL, we would need 5,80,000 barrels/day and for both, it is 1.2 million barrels/day. We already have made arrangements for the supply of crude. On the supply side, we are in every market, including the US, Europe, Middle east, Asia and Africa. Two per cent of the world market is ours.