India’s largest private sector company, Reliance Industries, controlled by the country’s richest man, Mukesh Ambani, holds a board meeting on Monday to discuss buying out the shares it does not already own in its main refinery unit.
As part of the transaction, the group will buy out its partner Chevron, which holds 5 per cent in the subsidiary, Reliance Petroleum, as the US oil giant looks to divest non-core businesses in the face of the global economic downturn.
Mr Ambani controls 70.38 per cent of Reliance Petroleum, which has a market capitalisation of about $7bn.
Reliance Industries declined on Sunday to comment on the deal.
However, it said in an announcement to the Bombay Stock Exchange that it was planning to hold a board meeting “to consider and recommend the amalgamation of Reliance Petroleum Ltd with the Company”.
The deal will give Reliance Industries complete control of the world’s largest single refinery complex at Jamnagar, Gujarat, western India.
Reliance Industries’ existing refinery at the site has a capacity of 660,000 barrels per day, while Reliance Petroleum’s new facility, commissioned only in December, has capacity of 580,000 bpd.
Analysts will focus on the valuation Reliance Industries, headed by Mr Ambani (pictured left), will assign to Reliance Petroleum.
The unit was listed only three years ago at what was seen then as a fabulous valuation of Rs60 per share, or around $6bn, for what was then a greenfield project.
The company’s share price soared during the intervening period.
However, last year it lost 60.9 per cent, in line with the overall market, and is now trading at Rs76.20 per share.
Reliance Industries may be looking to use the market slump as an opportunity to buy back Reliance Petroleum’s assets at a bargain basement price.
The unit is now trading near to its IPO price three years later and after the $6bn capital expenditure programme has been completed.
The project is an important leg in Reliance’s plan to be the major private sector oil operator in India.
The group is also implementing a project in eastern India that will make it the biggest gas producer in the domestic market.
Chevron bought its 5 per cent stake in Reliance Petroleum at Rs60 per share in April 2006 before the IPO and had until July this year to decide whether to exercise an option to raise the stake to 29 per cent.
Reliance Industries has the option to buy back the stake at Rs60 a share if Chevron does not increase it.
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