Reliance twins set to merge
Strategies to be rejigged
Compulsion dictates move
Sensex shrugs off budget blues, up 116 pts
Sinha overture to win back industry
MPs to the rescue
Foreign Exchange, Bullion, Stock Indices

Mumbai, March 1: 

Boards meet on Sunday to ratify plan

Reliance Petroleum (RPL) is set to be folded into Reliance Industries (RIL) in the mother of all mergers that will spawn the country’s largest private sector company with assets of Rs 50,000 crore.

A fully integrated oil and petrochemical company of epic proportions, the size of the combined entity will be over Rs 58,000 crore, based on their last balance sheets.

RIL, the country’s second largest private firm, had sired RPL from its own resources a few years back, but the kid outpaced the parent in sales volumes and profit growth.

The Reliance group today informed stock exchanges that the boards of two companies would meet on March 3 to thrash out terms of the amalgamation. “The scheme shall be placed before the boards of both companies for approval,” the notice said.

The Reliance scrip closed 5 per cent higher at Rs 322.15 in a gain of Rs 14.70, while RPL’s lost 0.87 per cent at Rs 28.60.

In the stock market, the merged entity will dwarf Azim Premji’s Wipro in terms of market capitalisation, and could even dislodge Hindustan Lever as the company whose shares are valued the highest in the market.

The timing of the announcement surprised market operators. “It beats me,” confessed a broker when asked why the Ambanis decided to consolidate their empire now.

Many say it is the impending privatisation of BPCL and HPCL that has prompted the move. The merger creates a formidable balance sheet, which will give the group the money it would require to fund big acquisitions.

Coming under one fold will enable the merged entity to bid aggressively for these two public sector oil refining and distribution majors, which have a combined market share of 40 per cent. Reliance is also one of those to have bid for the 2184 MW Dabhol Power Company (DPC), a subsidiary of the bankrupt Enron Corp. It is also a serious contender for a 26 per cent stake in the selloff-bound Indian Petrochemicals Corporation.

In a recent presentation, Reliance managing director Anil Ambani said: “A couple of years ago, I was 100 kilos. Now I am below 70 kilos. Every time I look at myself, I think I can go down by another 10 kilos! There is no end to customer and market creation, no end to productivity gains and no end to making newer products which customers want. You have to go on innovating as every day passes by because every day your people will have something to do.”

Sources said with the dismantling of the administered price mechanism from April 1, RPL will have to consider alternatives of setting up its own retail network or look at BPCL or HPCL. Significantly, RPL which operates a 27 million tonne grassroots refinery, has a large capital expenditure unlike RIL, which has reserves of over Rs 10,941 crore. “RIL could now use these resources to concentrate on marketing of petroleum products, which is now a weak link if we were to consider both these companies.”’

Industry experts say the advantages accruing from the merger are many. First, it will significantly strengthen RIL’s balance-sheet from over Rs 28,000 crore to Rs 58,000 crore.

Sharing this opinion, ASK Raymond James chief executive John Band told The Telegraph that the move would help Reliance increase its cash flow and strengthen its balance sheet. “RIL has mega-investment plans, while RPL has developed a strong cash flow.”

Most important, the amalgamation would create an end-to-end oil exploration, petrochemicals and textile giant vested in a single entity akin to similar global giants that have interests in both downstream and upstream oil sectors like Exxon Mobil and Shell. So far while RPL with its mammoth 27 million tonne unit at Jamnagar was engaged in the refining business, RIL had diverse interests in oil exploration, petrochemicals and textiles.

“If we were to look at global oil majors, their upstream and downstream business is done by one single firm and the business is not fragmented. Reliance will now be counted among these giants,” said Devesh Kumar, head of equities at ICICI Securities.

Sources added that while RIL is presently among the top five producer of petrochemicals, in terms of size too, the merged entity could now figure among the top ten Asian companies in this sector.

Valuations of RIL is also projected to soar dramatically following the merger, which sources said could have a salutary impact on RIL’s fund raising plans for its ambitious designs in the telecom sector.


Mumbai, March 1: 
The giant monolith spawned by the merger of Reliance Industries (RIL) and Reliance Petroleum could see the group reworking its strategy on many counts.

RIL, which holds almost 64 per cent equity in RPL, was considering divesting around 13 per cent in the latter to a strategic investor, while retaining majority control of over 50 per cent. Whether that plan will now be buried is a question that will be answered only on March 3.

Market estimates put a ratio of 10 or 12 shares of RPL for one share of RIL.

The combined balance sheet will look far more formidable than before, as RPL has outgrown the company that sired it in sales as well as profits and is expected to fuel its parent’s growth in businesses like telecom, where capex plans are in the region of Rs 25,000 crore.


New Delhi, March 1: 
Reliance Petroleum Ltd is bigger than its twin Reliance Industries Ltd in terms of turnover: but the irony of it is that it needs the muscle of the Ambani flagship company if it wants to put its rivals in the petroleum marketing business over the barrel.

Unlike RIL whose rise in India’s corporate firmament was in lock-step with the rise of the Ambanis and the gradual loss of the clout of big industrial houses that held sway till then, Reliance Petroleum has had to struggle to establish itself—and forced to work out marketing arrangements with the state-owned oil companies that are slowly being unscrambled just when the government is preparing to deregulate its oil market.

RIL had entered a virgin territory back in the early eighties by laying its bets on purified terephthalic acid (PTA) when the rest of its rivals, including Bombay Dyeing, were backing demethyl terephthalate—both of which are raw materials for polyester fibre makers. RIL came up trumps and has never looked back since.

But unlike RIL, RPL was entering a market where there were large state-owned companies. It set up the largest refinery in the world with 27 million tonnes and many saw it as a strategy to smoke its rivals out of the business.

RPL, however, had two things going for it: first, it had a refinery designed in such a fashion that it could change its product-mix quickly taking into account the market tides. Secondly, it had a captive consumer in RIL for which it produced naphtha and liquefied petroleum gas.

When the glut was at its height, RPL did not back down its production by reducing its crude throughput. It just cranked up naphtha and LPG sales to its parent.

The merger is coming about because of the compulsions thrown up by the imminent dismantling of the administered price mechanism (APM). RPL could be in serious trouble unless it enters the oil retailing business. Alone, its bottomline could crumble in a few months. Together with RIL, it could hunker down for a very absorbing battle with a clutch of rivals who may include some powerful foreign companies.

RPL has many firsts to its credit. It is the world’s largest refinery whose capacity with debottlenecking operations could rise to 35 million tonnes per annum. RPL has already established a crude throughput of 30 million tonnes per annum.

The Ambani magic worked initially in the case of RPL. The licensed capacity was doubled without anyone getting wind of it. The then finance minister Palaniappan Chidambaram legitimised it by delicensing the refining sector and granting zero duty for import of equipment. The zero duty facility was withdrawn a year later by which time RPL arranged all imports.


Mumbai, March 1: 
The Bombay Stock Exchange (BSE) sensex today changed course, closing 116 points higher in a rally driven by investors who thought the widely slammed budget could have a few redeeming features after all.

As the market discounted the negatives and tried to look at the brighter side of Yashwant Sinha’s proposals, the optimists went on a buying binge in a handful of shares. Among them were bellwethers like Lever and Reliance Industries, which found takers even in a market affected by the one-day strike called by the Vishwa Hindu Parishad to protest the Gujarat mayhem.

“Investors’ reaction on Thursday was overdone,” John Band, CEO of ASK Raymond James, told The Telegraph. “It was not a great budget, nor was it a bad one,” he added.

A small comfort amid the welter of grim tidings was a clarification issued by the government that the 10 per cent dividend tax does not cover growth-linked equity funds. Many mutual funds feared investors would rather pull out, than cough up the tax from their own pockets.

The 30-share index opened on a modest note at 3551.56, but later gyrated in a broad range of 3693.92 and 3551.56 before ending at 3678.75 compared with Thursday’s close of 3562.31, netting a rise of 116.44 points. The broad-based bse-100 index flared up by 52.67 points to close at 1760.39 from previous close of 1707.72.

On the BSE, 613 stocks ended gainers while 370 slid in a roller-coaster session that saw aggressive purchases being made by foreign institutional investors.

Even though Sinha, who met corporate captains to clear misgivings on his budget this afternoon, has not spell out how soon the privatisation of HPCL, MTNL, BHEL, BPCL will be completed, the shares of these companies turned out to be big draws today. They were among the 28 index-based stocks, apart from ACC, SBI and Zee Telefilms, that notched up sharp gains. ACC shot up by Rs 12.85 at Rs 176.35, Bhel by Rs 10.20 at Rs 178.35, Cipla by Rs 20.75 at Rs 1026.20, Grasim by Rs 14.85 at Rs 304.10, Hero Honda by Rs 20.95 at Rs 366.30, Lever by Rs 12.70 at Rs 262.50, HPCL by Rs 10.10 at Rs 296.30.


New Delhi, March 1: 
Finance minister Yashwant Sinha today held out the possibility of changes in the provisions for depreciation allowances and permitting set-off of modernisation expenses.

Speaking at a post-budget seminar organised here by Ficci, the finance minister held out the promise of further tinkering with the fine print of his finance bill, for 2002-2003 but ruled out rolling back cuts in fertiliser subsidies and price increases in kerosene and cooking gas.

In a lighter vein he told reporters on the sidelines of the conference that “even my wife is unhappy with the hike in cooking gas prices” but said he had managed to convince her of the need for it and said he looked forward to the country as a whole appreciating that he had no other option.

The finance minister, who was visibly piqued at being savaged by the media over his tough tax proposals, also indicated he expected banks to reduce interest rates on loans as they were being given a number of incentives to restructure their bad debts, which would reduce their transaction costs.

He further said the government has created equity fund worth Rs 1000 crore to bring together banks and financial institutions for appraisal to provide more funds for investment.

He also defended the high tax imposts, saying that revenue give-aways could have been arranged but this “would have seen the fiscal deficit climbing up further.”

Explaining this, he said that if corporate India’s demand for investment allowance had been granted, the government would have stood to lose Rs 6,000 crore; a reduction in the corporate tax from 35 per cent to 30 per cent would mean that it would have to forego Rs 7,000 crore and the withdrawal of MAT would have led to the loss of Rs 5,000 crore in tax revenues, which would have pushed up the fiscal deficit to 7 to 7.5 per cent of the GDP. He pointed “every percentage reduction in excise duty results in a loss of Rs 5000 crores”.

The rise in the fiscal deficit would have led to a reduction in the country’s credit rating worldwide and marred its image.

He emphasised repeatedly that the budget was not as disappointing as it appears at first sight. He said, “Second generation reforms are supposed to work with state government compliance.”


New Delhi, March 1: 
Corporate India is disappointed with the budget—and its turning to politicians to try and resist some of the unpalatable provisions in the Finance Bill. An 11-member CII delegation will be hob-nobbing with MPs to brief them about the fallout of the budget and nudge them to raise appropriate questions in the House.

“This is the first time that a CII team will be meeting a team of 41 MPs to discuss the budget,” said Ajay Khanna, deputy director general, CII.

Subodh Bhargava, a past CII president, said, “CII keeps on meeting politicians to understand each other better. This time the interaction will be on the budget.”



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