History of Mergers of Reliance Industries Limited (RIL)
In May 1973, a company named as Mynylon Limited was incorporated in Karnat Karnataka aka to manufa manufactu cture re synthe synthetic tic blende blended d yarns yarns and fabrics fabrics,, polyes polyester ter filament yarn, polyester glass shells and colour television picture tubes. In February 1975, a company by the name Reliance Textile Industries Limited (RTIL) was incorporated in Maharashtra. On 1 st July, 1975 RTIL was merged with Mynylon Limited and name of Mynylon was changed to Reliance Textile Industries Limited (RTIL). Thus, one can see that the birth of today’s RIL took place through a merger. In October 1977, the promoters (Ambanis) made an offer for sale of 2820000 equity shares of Rs. 10/- each at par and consequently the company was listed on the Bombay Stock Exchange in January 1978. In June 1985 the name of the company was again changed to Reliance Industries Limited (RIL). Till 1988, RIL mainly followed the organic growth strategy by setting up plants plants in its Patalganga Patalganga Complex. Complex. Polyester Polyester filament filament yarn (PFY) phase I was commissioned in 1982, followed by phase II in 1985. In 1986 it commissioned polyester staple fibre (PSF) and purified terephthalic acid (PTA) plants in the same complex. complex. This was followed followed by commissioning commissioning of linear alkyl benzene (LAB) plant in 1987 and paraxylene (PX) plant in 1988 in the same complex. Simultaneously, in 1987, Reliance Group had incorporated a company named Reliance Petrochemicals Limited (RPL) to develop the first phase of its Hazira Comple Complex x by settin setting g up plants plants to manufa manufactu cture re ethyle ethylene ne oxide oxide (EO), (EO), mono mono ethylene glycol (MEG), vinyl chloride monomer (VCM), poly vinyl chloride (PVC) and high density polyethylene (HDPE). This company came out with a public issue of approx. 74.93 crore equity shares of Rs. 10/- face value at par to raise Rs.749. 28 crore to part finance this phase I of Hazira Complex. After the first phase was commissioned in 1991, RPL was merged with RIL. The merger merger,, which which happen happened ed on 1st March March 1992, 1992, had had a swap swap ratio ratio of 1:10 1:10.. Shareholders of RPL were issued, for every 10 shares of RPL, one share of RIL. In a way, this was a backdoor premium issue by RIL. In 1992, Reliance Group had come out with a simultaneous issue of equity shares shares at par (face (face value value Rs. 10/-) 10/-) and optional optionally ly conver convertib tible le debent debenture uress (OCD) convertible at the price of Rs. 50/- per share for each of its twins i.e. Reliance Polyethylene Limited (RPEL) and Reliance Polypropylene Limited (RPPL). These companies, which were popularly known as ‘Illu’ and ‘Pillu’, respectively, in the stock market those days, had been promoted to develop seco second nd phas phasee of Hazir Haziraa Comp Comple lex x by sett settin ing g up plan plants ts to manu manufa fact ctur uree polyethylene and polypropylene respectively. These issues had received huge response from the public. Prior to these issues, the promoters had allotted hefty chunk of equity at par to themselves. Though the promoters participated in the OCD issue, it was to much lesser extent than public. Thus the cost of one equity share of RPEL worked out to Rs. 14.31 to promoters whereas the same was Rs. 34.13 to the public. In case of RPPL, these numbers were resp respect ectiv ivel ely y Rs. Rs. 16.6 16.61 1 and and Rs. Rs. 33.6 33.61. 1. In fina financ ncia iall year year 1994 1994-9 -95, 5, thes thesee companies were merged with RIL with a swap ratio of 1:4 in case of RPEL
and 3:10 in case of RPPL. As a consequence, the equity capital of RIL went up only by approx. approx. Rs. 99 crore but with a whopping addition addition of approx. approx. Rs. 700 crore to its reserves. Public shareholders of RPEL and RPPL got RIL shares at Rs. 136.52 and Rs. 112.03 respectively, whereas the promoters got them at Rs. 57.24 and Rs. 55.40 respectively. (The share price of RIL was in the range of Rs. 350-400 at that time). In 1993, Reliance Petroleum Limited (RPL), a Reliance Group company, had come out with an IPO offering triple option convertible debentures (TOCD) to part finance its 9 million tonne green field refinery project at Jamnagar. The size of the issue was Rs. 2172 crores of which net offer to public was Rs. 862 crores. The project was scaled up twice during the implementation stage – from 9 million tonnes to 18 million million and then to 27 million. million. Hence the project project got delayed and was commissioned in the financial year 1999-00. It posted a sterling performance in the first full year of operations i.e. 2000-01 with the turnover crossing Rs. 30000 crore and net profit of Rs. 1464 crore to become the largest private sector company in India, ahead of RIL. In 2001-2002 it bettered its performance by posting turnover of Rs. 33117 crore and net profit of Rs. 1674 crores. In March 2002, Reliance Group announced merger of RPL with with RIL with retrosp retrospect ective ive effect effect from from 1st April April 2001. 2001. The proces processs was completed with RIL allotting shares of RIL to shareholders of RPL in October 2002 in the ratio of 1:11. In this case again, while RIL’s equity capital went up by only Rs. 343 crore, amalgamation added approx. Rs. 11950 crores to its reserves. More importantly, RIL’s turnover in 2001-02, which would have been approx. Rs. 24000 crore, shot up to Rs. 57000 crore on account of RPL’s turnover of Rs. 33000 crore, making it the largest private sector company in India. RIL played the same rope trick again in 2006-07. In 2002-03, it had acquired 46% 46% stak stakee in IPCL IPCL thro throug ugh h its its inve invest stme ment nt comp compan any y Reli Relian ance ce Petr Petro o Investments Limited at the cost of approx. Rs. 2638 crore. In M arch 2007, RIL announced IPCL’s merger with itself retrospectively from 1st April 2006 and with the swap ratio of 1:5. This merger merger led to RIL equity capital capital going going up by just Rs. 60 crores while its reserves shooting up by approx. Rs. 5460 crores. It also added approx. Rs. 12000 to 13000 crore to the turnover of RIL in 200607. And lo and behold! While this book was going to press, on 2 nd March, 2009, RIL and RPL (Reliance Petroleum Petroleum Limited) Limited) boards announced the merger merger of RPL into RIL with a swap ratio of 16:1 i.e. 1 share of RIL for every 16 shares of RPL. This is the third “RPL” of Reliance Group, that like the first two mentioned above, is being merged with RIL. As we know, this RPL has set up the second refinery of Reliance Group close to its first refinery at Jamnagar. This new refinery went on stream in Dec 2008 and is being merged with RIL with retrospective effect from 1st April 2008. At the time of merger announcement RIL held 70.3 percent stake in RPL’s equity, while the western oil major Chevron held 5 percent, rest being with the public. Chevron had an option to increase its stake to 29 percent subject to Chevron signing crude supply and product off-take agreements. While it is
believed by some that the failure of RPL and Chevron to sign crude supply and product off-take agreements, as a consequence of which it was decided that RIL will buy Chevron’s 5 percent stake, was the trigger for merger (Economic Times dated 3 rd March, 2009). Some others believe that RPL was expected to incur substantial losses in the first quarter of 2009 (the first quarter of its operations also) and the merger was being done to avoid declaring standalone results of RPL for the year ending 31 st March, 2009 (Economic Times dated 28th Feb 2009). However, in reality neither the merger nor its timing timing is any surprise. surprise. As can be seen from the earlier paragraphs, paragraphs, it is a part of the in organic organic growth strategy followed by Reliance Group. Let us see how RIL would look post this merger. Post Post this this merg merger er,, RIL RIL is expe expect cted ed to be larg larges estt comp compan any y by mark market et capitalization, ahead of the present largest i.e. ONGC. In terms of sales and net profits, it is expected to be second only to Indian Oil Corporation (IOC). Post merger, RIL is expected to have 19.7% of the total turnover and 16.5% of the total profitability profitability of the 30 SENSEX SENSEX companies companies (Economic (Economic Times dated 28 th Feb 2009). Post merger RIL’s turnover for 2009-10 is estimated to be Rs. 2.60 2.60 lac crores as against 2008-09 standalone estimate of Rs. 1.60 lac crores; its net profit for 2009-10 is estimated to be over Rs. 29000 crores against 2008-09 standalone estimate of over Rs. 20700 crores. While its equity capital will go up by only Rs. 69 crores (4.4%) from Rs. 1574 crores to Rs. 1643 crores, immediately post merger, its networth is estimated to shoot up to Rs. 1.05 lac crores as of 31st March 2010 from the estimated standalone standalone networth of Rs. 84000 crores st as of 31 March 2009 (Economic Times dated 3 rd March 2009). Thus we can see how ‘merger’ has been used very effectively as a growth strategy by the largest private sector company in India. One must, however, understand that barring merger of IPCL, all other mergers into RIL mentioned above were of the group companies. Thus, while at RIL level the growth happened by inorganic route through mergers, at Reliance Group level it was still an organic growth. Sources: Sources: 1. www.ril.com www.ril.com,, 2. Past annual reports of RIL, 3. Economic Times th dated 28 Feb 2009, and 3 rd March, 2009. © 2009, Prasad Godbole.
