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Balaji C. Mouli

CHENNAI, April 12

RELIANCE Industries Ltd is emerging as the candidate to take control over the ailing Mangalore Refineries and Petrochemicals. The A.V. Birla group and Hindustan Petroleum Corporation Ltd, the two joint venture partners in the 9-million-tonne refinery at Mangalore, are in an advanced stage of negotiations to sell a part of their stake in the company to Reliance, according to industry sources.

If the deal goes through, Reliance will have a controlling stake in the company with stakes of both the A.V. Birla group and HPCL being reduced to below 10 per cent each. As part of the restructuring involving fresh issue of shares and conversion of debt to equity by MRPL, the stake of the domestic financial institutions will rise marginally from the present 1.64 per cent. The public now holds around 20.93 per cent in MRPL.

In a communication some time last week to the A.V. Birla group, HPCL had said that the strategic partner would need to infuse Rs 1,500 crore into MRPL.

This development could be the final chapter in the set of events that began a year ago when the A.V. Birla group wanted to sell its stake in MRPL. After an initial failed attempt to find a buyer in the market, the Birlas tried to sell their stake to HPCL. The valuation carried out by the merchant bankers, Arthur Andersen and SBI Capital Markets, came to a price of Rs 16 per share.

This was unacceptable to HPCL. The public sector refining and marketing major, in turn, carried out an internal valuation. It offered to pick up A.V. Birla's stake for Rs 1.60 per share in December last year when the market price of MRPL was around Rs 7 per share.

This was followed by the Birlas presenting two options to HPCL in January. As part of the first, it offered to buy out 14 per cent stock in MRPL belonging to HPCL for a sum of Rs 10 per share amounting to a transaction cost of Rs 140 crore.

After the transaction, the Birlas would have ended up with a 51 per cent stake in MRPL.

As part of the second option, it recommended fresh issue of shares by MRPL at a face value of Rs 10 per share where HPCL would renounce its subscription. In this scenario, the A.V.

Birla group would hike its stake to 50.5 per cent from the present 37.5 per cent at a cost of Rs 200 crore.

The HPCL board favoured the second option. Over the last two months, the complexion of the proposed transaction further changed leading to the proposed induction of Reliance as a strategic partner.

For the nine months ended December 2001, MRPL reported a cumulative loss of Rs 190 crore. Its accumulated losses as on March 31, 2001 stood at Rs 485 crore.

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