The Hindu Business Line : Reliance, IPCL merger swap ratio set at 1:5

Mumbai March 10 The Board of Reliance Industries Ltd on Saturday decided on a 1:5 share swap ratio for merging Indian Petrochemicals Ltd into RIL. Shareholders of IPCL will get one share of Reliance Industries for every five shares of IPCL.

Reliance, which acquired its initial 26 per cent stake in IPCL in 2002 under the Government's divestment programme, currently holds around 47 per cent stake in the company. The share capital of RIL post-merger shall increase from Rs 1,393.5 crore to Rs 1,453.6 crore. This merger will not significantly alter the promoters' stake in RIL itself, currently at 50.6 per cent, and slated to go up to 55 per cent upon issue of preferential warrants to the promoters, said an official.

The warrants can be fully converted into equity shares up to a period of 18 months from now.

"The merger will be earnings accretive for RIL shareholders and shall provide shareholders of IPCL an opportunity to participate in RIL's diversified portfolio," said Mr Mukesh Ambani, Chairman, RIL, in a joint statement from the companies.

IPCL's business portfolio predominantly consists of commodity polymers, which makes it prone to earnings volatility and cyclical risks, said the statement. The merger helps IPCL shareholders to derisk their investment, it said. The appointed date of merger is April 1, 2006.

The exchange ratio has been determined on the basis of a valuation report by PricewaterhouseCoopers and Ernst & Young. Post-amalgamation, the combined entity, taking 2005-06 financials, would have an annual net turnover of Rs 92,143 crore (RIL Rs 81,211crore) and a combined net profit of Rs 10,233 crore (RIL Rs 9,069 crore).The share price of RIL at Rs 1,366.75 on the BSE on March 1 has since been sliding in a volatile market (Except on March 6 when it gained). On Friday, it ended 1.2 per cent lower, at Rs 1,318.50 in a weak market.

The IPCL stock, which lost every day since March 1 (Rs 260.40), however, gained from Thursday, rising3.2 per cent on Friday to close the day at Rs 268.80.

On March 1, the share price of RIL was 5.24 times that of IPCL, while by Friday it was 4.9 times, as news of the amalgamation got investors buying IPCL. "Overall, the share swap ratio is in line with expectations," said a stockbroker.

The Government holds a minuscule share of Reliance Industries now. As of December 2006, the Government had 10,40,604 shares (0.35 per cent stake) in IPCL, held on behalf of those employees who had not bought shares that had been allotted to them. This will translate into over 2 lakh shares in Reliance Industries after the share swap, accounting for less than 0.01 per cent of RIL.

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