With much of its relevance lost as a business entity after the signing of a gas supply deal with Mukesh Ambani led RIL, Anil Ambani group firm RNRL will merge with sister concern Reliance Power. Market worth of the combined entity at today’s price would be Rs 50,000 crore.
The merger, possibly through a share swap deal, would be considered by the boards of the two companies on July 4.
Rumours of the deal pulled down the share prices of both RNRL and Reliance Power at the close of the trading on bourses.
Spokespersons of the group firms remained tightlipped about the rationale and modalities of merger, which would create an entity whose market cap would still be less than half of the initial market value of Reliance Power alone.
On the first day of its listing on February 11, 2008, R-Power had seen its market cap soaring to Rs 1,23,000 crore, albeit for a brief while, and later the stock had slipped way below the issue price of Rs 450 a share.
As a damage minimisation, the promoters had issued bonus shares to salvage the share price, which is still less than half at nearly Rs 175 as of today.
On its first day on bourses, post the country’s biggest ever IPO of Rs 11,500 crore that is still the only IPO that Anil Ambani’s group came out with ever since he split from elder brother Mukesh in June 2005, R-Power figured among the top 10 valued firms, but currently ranks 30th.
On the other end, RNRL was born out of the demerger of Dhriubhai Ambani’s Reliance empire five year ago. The purpose of creation of RNRL was for sourcing, supply and transporation of fuels, primarily natural gas.
As per the demerger scheme, RNRL was to source natural gas from Reliance Industries and trade it to ADAG power plants including the proposed mega 7,800-MW Dadri unit near here being set up by R-Power.
However, with the Supreme Court on May 7 upholding the government policy on pricing and utilisation of natural gas, RNRL almost had no role left in supply of gas to R-Power.
According to government’s Gas Utilisation Policy, trading or profiteering from natural gas sales is not allowed — no company can buy the fuel from a producer and sell it to an end consumer like a power firm for a margin.
Suppliers like RIL can only enter into a Gas Sales and Purchase Agreement (GSPA) with an actual user of gas.
Though it had signed a Gas Sales Master Agreement (GSMA) with RNRL expressing its intent to supply natural gas from eastern offshore KG-D6 fields, RIL can enter into a GSPA only with R-Power which is to implement the Dadri or other power plants of ADAG.
The apex court had on May 7 rejected RNRL’s plea for gas from RIL at rates arrived in a private family agreement, saying the government alone had the right to approve the price of fuel and fix its user.
The apex court said RIL can sell gas to RNRL at government-set prices of USD 4.2 per million British thermal unit and asked the two to enter into fresh agreement.
The new GSMA, entered into last week, was to replace the four-year-old GSMA between RIL and RNRL for supply of a minimum 28 million cubic metres per day of natural gas at USD 2.34 per mmBtu.
While RIL and RNRL have refused to share details of the new GSMA, sources in know of the development say the new contract does not mention the volume, tenure or price of gas, but only lists the requirement of gas at ADAG’s proposed units, including the 7,800-MW Dadri plant near here and the Shahapur plant in Maharashtra.
Supplies may have also been sought for expansion of the 220-MW Samalkot plant in Andhra Pradesh, the 48-MW Goa project and the 165-MW Kochi plant.
Once gas allocation is approved by an Empowered Group of Ministers headed by Finance Minister Pranab Mukherjee, RIL will enter into GSPA with R-Power for the specific plants of at the price and tenure determined by the government.
ADAG plants may be at least 27-30 months away from taking first gas.
RPower has separately bagged three coal-fired Ultra Mega Power Projects of 4,000 MW each.