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The Reliance Industries–British Petroleum deal is a master stroke by Mr Mukesh Ambani, who recovers his investments made in the KG basin as well as retains 70 per cent control over his oil and gas assets, said analysts.
“In the joint venture company of $20 billion, Reliance Industries' share is $10 billion. By selling a 30 per cent stake to BP for $7.2 billion with an additional $1.8 billion inflow if gas is struck, Mr Mukesh Ambani has virtually recovered the $7.8 billion already invested in the KG basin and that too in excess by $1.2 billion,” said Mr Jagannadham Thunuguntla, Equity Strategist at SMC Capital. “In addition he gets a 50 per cent stake in the joint venture by bringing in just $1 billion,” he added.
With respect to the stock price of RIL over the next few trading sessions, a knee jerk reaction is possible, suggested experts. “Having languished in a band of Rs 900–Rs 1,100 to a share in the last two years, its re-rating time now,” said Mr Rajesh Agarwal, Head — Research, Eastern Financiers, a Kolkata-based brokerage. “Capital infusion will also bring down interest costs provided they retire some amount of debt in their balance sheet,” he added.
This deal will fuel another round of wealth creation for RIL investors, said analysts.
In addition BP's strength in global gas exploration worldwide and technology transfer would only benefit RIL, said the experts.
Investment Opportunities
Experts feel that RIL might deploy the funds thus unblocked in its other businesses, possibly telecom. There is wild speculation that RIL could take over the tower business of Reliance Communications (but not take operational control because of the 2G scam and outstanding FCCBs).
“RIL has a large pipeline of investment such as expansion in their retail and hospitality business, building their broadband and wireless business or even building ultra mega power projects,” said Mr. Thunuguntla.
Experts said the only concern in this RIL- BP deal is the speed of government approval. Once approval is received, the deal could constitute the largest foreign direct investment in India by a large margin, said market experts.
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