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Monday, Mar 04, 2002

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Reliance Ind, Petro boards fix merger swap at 1:11

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Mr Anil Ambani

MUMBAI, March 3

THE boards of directors of Reliance Industries Ltd (RIL) and Reliance Petroleum Ltd (RPL) today approved a scheme of amalgamation of the two companies at a swap ratio of one RIL share for every 11 RPL shares held.

The merger is effective retrospectively from April 1, 2001, representing the first full year of commercial operations of RPL. The exchange ratio was determined on the basis of the valuation report of PricewaterhouseCoopers and SB Billimoria. JM Morgan Stanley is acting as financial advisor to the transaction.

Addressing a press conference on Sunday, Mr Anil Ambani, Managing Director, RIL, said the merger would increase RIL's equity capital by 32 per cent to Rs 1,396 crore from Rs 1,053 crore.

The value of RPL's assets has been put at Rs 21,000 crore by industry consultants, Chemsystems. RIL will issue about 34-crore additional equity shares of market value of approximately Rs 11,000 crore. The merger would result in accretion of Rs 1,300 crore to RIL's net profit.

Post-merger, the equity shareholding of the promoters in RIL would come down from the current 44 per cent to 34 per cent. The holding of foreign entities, including FIIs and GDR holders, would come down from 26 per cent to about 21 per cent. Institutional and banks' holding would go up by about 1 percentage point to 14 per cent. Public holding would increase to 19 per cent from 17 per cent, Mr Ambani said.

Of the 64 per cent holding by RIL and associates, 28 per cent held directly by RIL would be cancelled. A 7 per cent stake of the diluted equity capital of RIL, in lieu of RPL shares held by Reliance Industrial Investments and Holdings Ltd (RIIHL), would be transferred to a trust. Another 5 per cent would be held by associate companies of RIL, Mr Ambani told newspersons here today.

The 12 per cent equity holding has been valued at Rs 5,400 crore, which, according to Mr Ambani, RIL "will endeavour to monetise at an appropriate time in future, for instance, through sale of the shares in the international markets to strategic or financial investors''.

The holding may also be leveraged to pursue significant acquisition and other growth opportunities in domestic and international markets, he said.

The merger would increase RIL's operational synergies and cost efficiencies.

It would optimise fiscal incentives, enhance financial strength and flexibility. It would also eliminate transfer pricing issues.

Elaborating on the rationale and the timing of the amalgamation, Mr Ambani listed out four main reasons:

Continued progress in the hydrocarbon sector reforms and deregulation, dismantling of the administered pricing mechanism in the refining industry, Government decision to grant marketing rights for transportation of fuels to the private sector, and the proposed disinvestment of HPCL and BPCL.

Mr Ambani said the merger was aimed at achieving the benefits of scale, size and integration, which were the globally adopted and accepted models for growth in the energy and chemicals sectors.

He pointed out examples of BP-Amoco, Exxon Mobil and Shell which follow the integrated upstream and downstream business model.

Close on the heels of the merger announcement, rating agency, Crisil, reaffirmed its `AAA' rating assigned to RIL's debt.

It has put RPL's debt on rating watch with positive implications.

Interim dividend

The board of RIL today recommended an interim dividend of Rs 4.75 per equity share (47.5 per cent) for 2001-02. This will result in a dividend outgo of Rs 551 crore. This is against Rs 4.25 per share (42.5 per cent) declared in the previous year.

The board of RPL has recommended an interim dividend of Re 0.50 per share (five per cent) for 2001-02.

This will result in an outgo of Rs 287 crore. Last year also RPL declared five per cent.

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