The Telegraph
Since 1st March, 1999
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Haze on special RIL stock

Mumbai, Aug. 7: The Reliance de-merger formula has left Rs 12,500 crore worth of the so-called treasury stock ' or 12.2 per cent of the equity base ' out of calculations, leaving little clarity about what the Rs 76,000-crore oil refining and petrochemicals company intends to do with this holding.

The treasury stock represents about 17 crore shares and it is not clear whether Reliance Industries will extinguish these shares.

The stock pool was created when RIL merged Reliance Petroleum Ltd (the company that spawned the Jamnagar Refinery) with itself.

Before the merger, RIL directly held a 27.55 per cent stake in Reliance Petroleum through a 100 per cent subsidiary, Reliance Industrial Investments Holding Ltd (RIIHL). It also had holdings through special purpose vehicles (SPVs), which were created when Reliance Petroleum was established.

When Reliance Petroleum merged with RIL, the direct holding was cancelled and the holding through RIIHL was converted into 7.5 per cent of Reliance shares. These shares were transferred to a specially created Petroleum Trust, which had RIIHL as the principal beneficiary. Reliance’s 4.7 per cent holding through SPVs was also converted into Reliance shares and retained within the SPV structure. The trust’s 7.5 per cent holding is classified in RIL balance-sheet as a promoter holding.

The de-merger proposals announced by RIL and Anil Ambani, ensured that the treasury stock held by the trust and subsidiaries would not be entitled to shares of ADAE companies. This was designed to benefit RIL shareholders, who would stand to get more shares in the Anil Ambani companies as a result.

If the Petroleum Trust picked up shares in ADAE companies, Mukesh Ambani’s RIL would still control a sizeable stake in ADAE companies, including Reliance Infocomm, Reliance Energy and Reliance Capital.

Institutional investors and local brokerages have dubbed the separation formula as “shareholder friendly” and “transparent”, which works beautifully in everyone’s favour. But analysts are still fuddled by the company’s studied silence on the fate of its treasury stock.

There are two options for the treasury stock.

The first option is that shares will be unlocked at a later stage, or otherwise extinguished by writing off RIL’s capital by over 12.2 per cent. It is likely that the company might be in favour of extinguishing the shares, which will increase the percentage stake held by current shareholders, including promoters, without them adding a single share to their kitty.

Some argue that it makes sense to privately place the treasury stock with strategic investors as it would help garner well over Rs 12,500 crore for the company to help fund its future expansion plans.

Others argue that its annual cash flow of Rs 12,500 crore from existing businesses would be enough to fund the Rs 45,000-crore expansion plans. Therefore, it makes sense to extinguish the shares and add more market value to existing RIL shareholders.

Reliance has to decide fast as the time limit to divest its stake expires in five years after the merger of RPL. There is only a year left to this deadline.

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