Reliance Power, RNRL merger ratio fixed at 1:4, deal in line with market rate of stocks

Billionaire Anil Ambani’s Reliance Power (R-Power) will merge sister firm Reliance Natural Resources (RNRL) with itself by offering share for every four RNRL shares in a deal that is seen as the younger Ambani’s attempt to ensure gas supplies from elder brother Mukesh Ambani’s Reliance Industries (RIL). The boards of R-Power and RNRL on Sunday approved the merger proposal as well as the share swap ratio based on the valuation by consultancy firm KPMG, the Anil Dhirubhai Ambani Group (ADAG) said in a media statement. The merger process is likely to be completed by the end of this calendar year, said a senior ADAG official. “The merger is the only way out to allocate gas rights to R-Power,” said SP Tulsian, a Mumbai-based independent analyst who tracks companies owned by both Ambani brothers. “The move is positive for R-Power shareholders.”

RNRL was created five years ago to buy natural gas from RIL at a cheap rate and transmit it to R-Power. But the government policy now in place, envisages no role for such a company. Instead only actual users of gas, such as power and fertiliser companies, are entitled to the fuel. In May, the Supreme Court ruled that the government had the right both to determine the price of gas as well as fix the user. On June 25, RNRL and RIL signed a revised gas supply agreement in line with the apex court’s verdict to resolve a dispute that had been at the heart of the feud between the Ambani brothers.

“The merger will accelerate R-Power’s plans for setting up an 8,000 mw gas-fired power unit,” ADAG said in the media statement. Post merger, R-Power will have ownership of RNRL’s share in four coal-bed methane blocks and an oil and gas block in Mizoram. RNRL’s proposed shipping venture will also come in handy for R-Power because it will be able to use the vessels for captive usage. On the other hand, RNRL shareholders will benefit from R-Power’s generation portfolio of 37,000 mw and its coal reserves in India and abroad, the media statement added.

“This (merger) has proved that RNRL has always been a shell company,” said Mr Tulsian, adding that the RNRL stock might open at Rs 42-43 in early trades on Monday, a huge discount to the stock’s Friday’s close of Rs 63.55. The merger swap ratio is in line with the two companies’ market capitalisation, or the value of the total shares at ruling market price. At Friday’s close, RNRL’s market capitalisation stood at Rs 10,394 crore, nearly one-fourth of that of R-Power’s Rs 41,979 crore.