Reliance Power and Reliance Natural Resources Ltd (RNRL), both part of the Anil Ambani Group, are considering a merger. Both the companies have a board meeting on July 4 to consider merging RNRL into Reliance Power. The swap ratio and other details haven’t been announced yet. The combined market capitalisation of the two firms was over Rs 52,000 crore on Friday.
“The rationale for the merger is that RNRL’s gas trading model doesn’t exist,” says Mr Deven Choksey of KR Choksey. RNRL had originally been created as an intermediary that would purchase KG basin gas from RIL and sell it to the Dadri power project of Anil Ambani Group. Reliance Power is the current owner of the proposed 3,500 megawatt Dadri project. “Once the gas sale agreement is signed, RNRL wouldn’t have any business, it wouldn’t be making any money,” he adds.
Last month, RNRL and RIL inked a new gas supply master agreement (GSMA), that would have governed supply of Krishna Godavari basin gas from the latter to the former. According to the government’s gas utilisation policy, no company can buy the fuel from a producer and sell it to an end consumer like a power firm for a margin.
The merger of the two companies would also resolve a lot of legal issues, says Mr Apurv Shah, Prabhudas Lilladher.
RNRL wasn’t allowed to trade in the gas, and buying it from RIL and selling it to Reliance Power may be considered as trading, he adds. “RNRL was set up as a vehicle to acquire fuel for the ADAG group,” says Mr Ajay Parmar, Emkay. “The-refore the merger makes sense and can be seen as a consolidation,” ge adds.
Based on Friday’s closing price for the two stocks, the swap ratio could be one share of Reliance Power for 2.75 shares of RNRL. However, that is unlikely because of sharp fluctuations in the stock price of Reliance Natural Resource Ltd.
Another possibility is to use the book values of the two shares to calculate the stock price. On that measure, the swap ratio could be one share of RPower for five shares of RNRL. RNRL shares are likely to witness a sharp fluctuation on Monday, depending upon the swap ratio that’s announced, say market watchers.