Mumbai, March 10: The boards of Reliance Industries and IPCL today agreed to merge and decided on a swap ratio of 1:5. This means IPCL shareholders will receive one share of Reliance for every five shares held by them.
The merger details announced today is likely to make shareholders of Reliance happy because Mukesh Ambani wants to monetise RIL’s holding in IPCL.
Like he did for the merger of Reliance Petroleum (RPL) with RIL in 2002, the plan now is to hold 2 per cent of RIL’s expanded equity capital (post merger) in a trust and later hawk this to strategic or financial investors.
RIL’s associate companies now hold 47.3 per cent of IPCL’s equity share capital. These shares will be exchanged for equity shares of RIL and they will constitute 2 per cent of the enhanced equity share capital of RIL.
While these shares now have a market value of over Rs 3,700 crore, the associates will hold them for all the shareholders of RIL instead of cancelling them during the merger process.
The idea is to offer these shares to financial or strategic investors in domestic or international markets.
The swap ratio of 1:5 was cleared by the board of RIL today and it is largely in line with market expectations. “The swap ratio seems fair. Based on the market price of both IPCL and RIL shares on the day of the merger announcement, this ratio was a forecast,’’ an analyst said.
RIL said the exchange ratio has been determined on the basis of a valuation report by PricewaterhouseCoopers and Ernst & Young. The appointed date of merger of IPCL with RIL is April 1, 2006 and the share capital of RIL after the merger will increase from Rs 1,393.5 crore to Rs 1,453.6 crore.
Explaining the advantages of the merger, RIL said it has a diversified portfolio of businesses in the form of oil and gas, refining and marketing, petrochemicals, organised retail and development of special economic zones.
Moreover, it has plans to make huge capital investments in all its core businesses to pursue growth opportunities. But, IPCL’s business portfolio predominantly consists of commodity polymers, which makes it prone to earnings volatility and cyclical risk. Therefore, the merger will provide shareholders of IPCL an opportunity to de-risk their investment by participating in the growth opportunities of RIL.
Mukesh Ambani said, “This merger will create value through synergies and scale that shall enhance the sustainable competitive advantages of RIL. This merger will be earnings accretive for the shareholders of RIL and shall provide shareholders of IPCL an opportunity to participate in RIL’s diversified business portfolio.”
RIL has announced a 110 per cent interim dividend of Rs 11 per fully paid equity share of Rs 10 each of the company. The paid-up equity share capital of the company is Rs 1,393.50 crore. Meanwhile, IPCL has also declared a 60 per cent interim dividend at Rs 6 per fully paid share of Rs 10 each.
IPCL’s paid-up capital is Rs 300.07 crore. Reliance Industrial Infrastructure has declared an interim dividend (35 per cent) of Rs 3.50 per fully paid share having face value of Rs 10 each.