RNRL to merge with R-Power

The Anil Dhirubhai Ambani Group (ADAG) has decided to merge Reliance Natural Resources Ltd (RNRL), its gas trading subsidiary, with Reliance Power.

The boards of both the companies will meet on Sunday to consider the proposal. Though R-Power and RNRL spokespersons declined to share any details, the two companies informed of the development to the stock exchanges after close of trading.

Last week, Mukesh Ambani-promoted Reliance Industries (RIL) and RNRL had signed a revised gas sale master agreement (GSMA) pursuant to the Supreme Court's May 7 judgment, where it had turned down RNRL’s plea for cheap gas from RIL based on a family agreement.

RNRL had earlier sought 28 million standard cubic metres of gas per day (mscmd) for 17 years at $2.34 per million British thermal units (mBtu) from RIL.

The court struck down its claim, saying the government was the owner of natural gas under article 27.1 of the production-sharing contract with RIL.

Both the groups on May 23 had entered into a non-compete agreement to reconcile their four-year-old differences on gas supply.

The merger will strengthen ADAG’s case for gas allocation from D-6 since with this, the gas trading arm stands merged with the power generating company. So far the government has allocated gas only for actual users like power and fertiliser units. The only exception is city gas distribution company Indraprastha Gas to which a small allocation has been made.

Analysts say after the signing of the agreement, RNRL became almost a shell company with no major activities as it was formed for the supply and transportation of gas from the various gas fields of RIL to ADAG companies for power and other projects. “Unfortunately, RNRL will become a shell company if the gas supply contract is not honoured,” Anil Ambani had told RNRL shareholders in July 2009.

RNRL currently has an acreage of 7,000 sq. kms, comprising four coal bed methane blocks and one block for exploration of oil and gas.

It had also given an application to the Petroleum and Natural Gas Regulatory Board for laying a gas pipeline from Kakinada in Andhra Pradesh to Dadri in Uttar Pradesh, where R-Power plans to develop the largest gas-based power plant in the world.

RNRL was also planning to set up a 20-million-tonne capacity for cement using flyash from R-Power’s coal-based power plants and enter shipping to transport coal for R-Power’s power plants.

The company in 2009-10 had a turnover of Rs 298 crore, with net profit of Rs 73 crore.

It was also planning to enter distribution of gas to retail consumers in cities, using the share of gas available from KG D-6.
 

STRENGTH IN UNITY
COMPANIES	TURNOVER	PROFIT	M-CAP
RNRL	298	73	10,394.94
R-Power	20	683	41,979.95
Combined	318	756	52,374.89
Figures in Rs cr; m-cap as per share price on Friday; turnover and profit for 2009-10
RNRL
* Sources, supplies and transports gas, coal and liquid fuels
* Has four coal bed methane blocks with an acreage of about 3,251 sq km
* Holds oil and gas block in Mizoram awarded under Nelp-VI
R-POWER
* To develop, construct and operate power projects
* Has a portfolio of almost 35,000 Mw of power generation capacity
* Has over 1,000 Mw of operational power generation assets
* Has coal reserves of over 2 billion tonnes in India
Source: Company websites

However, on May 7, 2010, the Supreme Court ruled that RNRL could not be allowed to trade natural gas, as natural gas was a national property. “Post the Supreme Court verdict, RNRL has no locus stand in the case. Considering both the companies are still under execution, the share-swap deal could be of 5:1 (RNRL-R-Power) based on book value of the company,” said S P Tulsian, a Mumbai-based independent investment analyst.

The combined entity of R-Power and RNRL will have a market capitalisation of Rs 52,374.89 crore, according to the share prices on Friday.  Reliance Power has a market capitalisation of Rs 41,979.95 crore and RNRL, Rs 10,394.94 crore.  “At present it does not make legal or commercial sense for RNRL to exist. RNRL’s existence becomes a question mark. It makes sense to merge it with R-Power, which will set up the power plant,” said H L Ranina, a corporate Lawyer.

RNRL was formed in 2000 as a gas trading company for Reliance Industries. It was later given to Anil Ambani as part of a family de-merger between the Ambani brothers in December 2005.

Sources said the merger process would take a few months as both are listed companies and would require approval of shareholders of the two.