Reliance Power, RNRL to talk merger tomorrow

MUMBAI: The boards of Reliance Power (RPower) and Reliance Natural Resources (RNRL), both controlled by billionaire Anil Ambani, will consider a merger on Sunday, continuing a spate of corporate actions that started after Anil and elder brother Mukesh announced a patch-up on May 23.

The move, analysts said, had become inevitable as RNRL, that was formed to buy natural gas from Mukesh’s Reliance Industries and transmit it to power plants owned by Anil, did not have a viable business after the Supreme Court ruled that the government had the last word in the pricing and distribution of the fuel.

“Since the gas dispute is resolved, there is no reason for the Anil Dhirubhai Ambani Group (ADAG) to continue RNRL in its present form,” said Deven Choksey, managing director of KR Choksey Securities. “But RNRL shareholders should be compensated by the promoter group as the company’s plea to get gas at a cheaper rate was squashed by the apex court.” ET NOW, this paper’s business channel, broke the story on Friday afternoon.

“RNRL had no reason to exist after the outcome of the gas case that went in Reliance Industries’ favour... So it had to be merged or else it would have collapsed,” said SP Tulsian, a Mumbai-based investment analyst, who tracks the Mukesh and Anil Ambani groups closely.

The boards will appoint independent valuers to determine the share-swap ratio, said a person in the know of the matter. Analysts expect RNRL shareholders to get one R-Power share for every four to five shares held by them.

“Since both companies have no operational history, I believe the merger swap ratio of the companies should be on the basis of book value,” said Mr Tulsian. “On that basis, the share-swap ratio should be 5:1 (five shares of RNRL for every one Reliance Power scrip).”

But the chief financial officer of a large company, who tracks markets closely, said the swap ratio should be 4:1 taking into account the market value of the stocks. The CFO did not wish to be named.

The R-Power stock gained 3.3% to close at Rs 175, putting the market capitalisation, the value of total shares at the ruling market rate, at Rs 41,979 crore. The RNRL stock lost nearly 2% to close at Rs 63.65. The company’s market capitalisation stands at Rs 10,394 crore.

Apart from the gas transmission business which never took off, RNRL, which will soon merge into R-Power, has four blocks with an acreage of 3,251 sq km where it has exploration rights for coal bed methane. It also has a block in Mizoram where it explores and produces oil and gas.

“Mergers or similar corporate actions done by most groups have been in favour of the promoter groups. We expect it to be no different this time,” said a senior manager with a private mutual fund, which owns Reliance Power in its various schemes.

ADAG holds 85% in RNRL and 55% of R-Power, according to the companies’ shareholding pattern available with NSE. “Ideally, RNRL should have gone for a share buyback and rewarded shareholders for being with a company that has no operations,” said the fund manager. “This move could burden Reliance Power shareholders,” he added.
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