Mumbai, March 2: The share swap ratio for the merger of Reliance Industries with Reliance Petroleum has been fixed at 1:16, meaning one share of Reliance Industries will be exchanged for 16 of the latter.

Reliance Industries Limited (RIL) will issue 6.92 crore shares to the nearly 22 lakh shareholders of Reliance Petroleum Limited (RPL), in a move seen to be benefiting RPL shareholders.

For RIL, the merger will increase its equity by 4.4 per cent to Rs 1,643 crore from Rs 1,574 crore, with the promoters’ holding coming down to 47 per cent from 49 per cent.

Analysts had largely expected the merger ratio to favour the RIL shareholders as figures of 1:20 and even 1:22 did the rounds. Some, however, had seen a ratio of 1:16.5, based on the closing prices of last Friday, when the announcement was made.

RIL’s decision not to create treasury stock also surprised market-watchers. It has decided to cancel its 70.38 per cent holding in RPL, meaning no extra treasury stock.

Such a stock is created if a company holds its own stock because of a merger with a group firm.

Post-merger, RIL will be among the 10 largest private refinery companies in the world.

“This merger follows Reliance Industries’ philosophy of creating enduring value for all our stakeholders. It is a significant step in our goal to be among the largest global corporations,” Mukesh Ambani, chairman and managing director, RIL said.

Reliance can now process 1.24 million barrels per day of crude up from 660,000 barrels per day.

CFO Alok Agarwal said the company expected synergies in crude sourcing, product placement, supply chain and other areas.

Speaking to newspersons after the board meeting of Reliance, Agarwal said the merger would improve the company’s earning per share from the first year itself.

“We will get significant cash flows in the first year of operations. There will be more efficient utilisation in the merged entity rather than RPL as a stand-alone entity,” he said.

The RPL shareholders, according to Agarwal, will gain because they will now be part of a wider portfolio in RIL. Shareholders of RIL will benefit from the addition of a world class asset.

Moreover, the RPL shareholders are coming at a time when RIL’s large investments in the exploration business are set to bear fruit. “Reliance gets a consolidated asset that is ready at minimum project risk, while RPL shareholders get to participate in RIL’s upstream product portfolio.’’

Agarwal said the merger would be tax neutral. RIL’s 33-million-tonne export-oriented refinery and RPL’s just commissioned 29-million-tonne SEZ refinery will be accounted separately. “Both refineries will retain their tax benefits.”

A PTI report, however, said the income tax authorities would look into the tax liabilities of the merged entity.

Both the RIL and RPL share prices fell on the BSE today. RIL fell 3.2 per cent to Rs 1,225.15, while RPL was down 1.4 per cent to Rs 75.15.

Analysts gave a thumb-up to the merger.

Angel Broking analyst Deepak Pareek said the deal was a win-win situation for the companies. RIL will have improved cash flows, a stronger balance sheet and a lower cost of capital. “For RPL shareholders, the merger is expected to reduce earnings volatility and allow them to participate in RIL’s full energy value chain,” Pareek, who has a buy call on RIL, added.