Mumbai: India’s largest company by market value,Reliance Industries Ltd, or RIL, has not paid dividends to its shareholders and pushed back the declaration of its consolidated balance sheet for the last fiscal year, as it awaits a crucial statutory clearance for the proposed merger with its refining subsidiary.
Hurdles to the merger between RIL and Reliance Petroleum Ltd, or RPL, are being removed one at a time with the Gujarat high court quashing on 31 August objections raised by one of the three shareholders against the merger. The other two petitions are yet to be disposed of. The Bombay high court has already approved the merger, dismissing objections from minority shareholders in early August.
While the court approval, or the absence of it, has upset the expected timelines in the financial calender of the oil-to-yarn and retail conglomerate, analysts say it is just a technical snag and will get ironed out. RIL has no option but to wait, they say.
RIL, on its part, had to postpone its board meeting twice in the last fortnight as it needs to publish consolidated accounts and balance sheets— something it can’t go public with until it gets all clearances.
On 27 August as well as 2 September, the Mukesh Ambani firm informed the Bombay Stock Exchange that its board of directors could not meet and “consider and approve the audited financial results...for the year ended 31 March 2009 and to consider and recommend dividend”, but did not spell out a reason for the postponement.
Besides the dividend payout, the annual report and annual general meeting (AGM) are also held up until the process is complete. RIL has already written to the Registrar of Companies, Maharashtra, seeking an extension up to 11 December for holding the AGM, as it is sure to go beyond the period permitted between two AGMs.
Its last AGM was in June 2008. Under company law, the maximum gap between two AGMs is 15 months and any firm exceeding this needs to approach the authority and seek its approval.
“The Hon’ble Gujarat high court is yet to give its written order on the proposed merger of Reliance Petroleum with Reliance Industries. We are expecting the same shortly and would reschedule the board meeting to consider our consolidated audited results,” said Neucom Consulting’s Manoj Warrier, RIL’s media relations agency, in an e-mailed response on Saturday.
No new date has been assigned for the board to meet since, but the April-June quarter “limited review” put up on the exchanges by RIL on 3 September gave an inkling of what may be blocking the process.
This statement said that the scheme of amalgamation for the merger of RIL and RPL had been submitted to the Bombay and Gujarat high courts and “upon receipt of statutory approvals, the scheme will be given effect to in the financial statements for the year ended March 31, 2009.”
One analyst tracking the firm said RIL’s hands were tied, and added a caveat. “The delay is all because of the merger (issues). How will they give out consolidated accounts unless the merger and the swap ratio are approved? But what I don’t understand is why they would schedule a board meeting, twice over in fact, if the approval had not come,” said a Mumbai-based analyst with a foreign brokerage who did not want to to be named as he is not authorized to speak to the media.
Another analyst with a domestic brokerage called it a “mere technical snag and nothing else.”
An official close to the development explained that the Gujarat high court’s verdict approvals had been expected and board meeting dates were announced in anticipation of that. The official didn’t want to be named.
RIL decided to merge its 95%-owned subsidiary RPL with itself on 2 March, citing operational synergies in the refining business, especially at a time when refining capacities will be added globally over the next few years in what appears to be an already over-supplied fuel market. The firm has given a swap ratio of 16:1—one share of RIL for 16 shares of RPL. It also bought the 5% stake held by US energy firm Chevron Corp. in RPL.
Two minority shareholders —Anup Sheth and Rasiklal S. Mardia—tried to ground the merger application in the Bombay high court, alleging that the swap ratio was not fair and that the regulators for the stock markets and financial sector scrutinized the proposal before the court’s approval.
But the court did not see merit in their argument. Mardia, along with Shailesh Mehta and Vishweshwar M. Raste, also opposed the merger in the Gujarat high court, from where the approvals are now awaited.
In an order dated 31 August, the Gujarat high court “disposed of” Mardia’s plea, saying “the appellant had no locus standi to object to the proposed amalgamation” as he had purchased just one share of the company after the petition for merger approval had been filed by RIL and RPL.
No rulings in the Mehta and Raste pleas have been put up on the Gujarat high court website, indicating that the matter is still pending.