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Our Bureau

Mumbai, Aug. 28 With Reliance Industries Ltd proposing to transfer 80 per cent stake in its oil and gas assets in the Krishna-Godavari basin to four other wholly owned subsidiaries, market sentiment for the stock seems to have affected. The RIL stock dipped 4.8 per cent in the past two days and it closed at Rs 2,073.70 on Thursday.

The company has sought an approval from the Government to transfer 80 per cent participatory interest in its KG D6 Block in the Krishna-Godavari to its four wholly owned subsidiaries, it said on Tuesday.

RIL holds 90 per cent stake in the block, where large gas discoveries have been made. The rest of the stake is held by Niko Resources of Canada. The block holds about 14 trillion cubic feet of gas reserves. The company intends to pump out gas from the D-6 block by October. RIL shares had closed down by over 2 per cent on that day.

Valued at nearly $50 billion with 14 trillion cubic feet of gas reserves, this is the most valuable asset held by the company, according to analysts. The market might have taken the news of asset transfer by Reliance negatively, although the asset sale will not affect the financials of the company in anyway, said Mr Sudeep Anand, Associate Vice-President, Religare Securities.

Another reason for the weakness in buying interest might be due to the ongoing Court case (vs Reliance Natural Resources Ltd), felt a section of analysts.

The share price of Reliance Industries Ltd has dipped 7.65 per cent since the last Court hearing on the case, while that of RNRL has dipped by 3.78 per cent. While there is no direct correlation between the Court case and the dip in stock price, the market sentiment in general has been bearish for the past few days and this might be responsible for the dip in the stock price,” said Mr Rohit Nagraj, Analyst with Angel Broking Ltd.

“A delay in the resolution of the ongoing legal dispute between RIL and RNRL may potentially delay gas production from RIL’s KG D-6 gas block. Also, an unfavourable decision for RIL by the Mumbai High Court (or the Supreme Court, if the matter reaches it eventually) will be a negative for RIL’s earnings versus street expectations,” says a Kotak research report.

RIL is currently barred from selling gas to outside parties by a stay order of a single-judge bench of the Mumbai High Court. A two-member bench is now hearing arguments from the legal counsels of RIL and RNRL to decide on the case. In the last hearing, it was official that the State-run NTPC does not have a concluded contract with RIL on supply of gas. The case between NTPC and RIL is also pending in the High Court. Meanwhile, the Bombay High Court last week suggested that both the Ambani brothers seek the help of their mother to resolve their dispute.

On a more fundamental basis, it is the negative refining margins at RIL, which are affecting its stock price negatively, according to analysts. There are concerns of downside risk to the earnings for the financial year of 2008-09 as the Singapore refining margins have slumped, said a research report by Merrill Lynch

Singapore refining margin is considered as the benchmark refining margin, said analysts.

The Merrill Lynch report also says that there is worry that D6 oil and gas output may be lower than expected.

More Stories on : Stocks | Reliance Industries Ltd

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