Mumbai: Mukesh Ambani’s Reliance Industries Ltd, or RIL, India’s most valuable firm by market capital, confirmed on Tuesday that it plans to transfer to four subsidiaries 80% of its stake in the Krishna Godavari, or KG, basin where the firm has struck huge gas reserves that are at the centre of a dispute between the estranged Ambani brothers.
Two of the units — Reliance Krishna Godavari Exploration and Production Pvt. Ltd and Reliance KG Basin E and P Pvt. Ltd — were incorporated as recently as on 5 February. A third, Reliance KG Exploration and Production Pvt. Ltd, was set up in December 2006. The fourth subsidiary is Reliance Petro Investments Ltd.
An RIL spokeswoman said “the proposal has been submitted to the concerned regulatory authorities and approval is awaited.”
Describing the proposed transfer of equity to subsidiaries as a “common global practice”, she said there will be no loss in RIL shareholders’ value. The move “would enable the firm to enhance its financial flexibility as the company builds its E&P (exploration and production) portfolio,” the spokeswoman said.
The Economic Times on Tuesday reported the firm’s intent to shift to its subsidiaries the bulk of its stake in the gas reserves, estimated at 14 trillion cu. ft and valued at $50 billion (Rs2.21 trillion).
The KG basin reserves off the eastern coast have been in the limelight on account of two lawsuits that have seen RIL take on state-owned NTPC Ltd and Mukesh Ambani’s brother Anil Ambani’s Reliance Natural Resources Ltd (RNRL) for the rights to the gas.
“The transfer to subsidiaries will not have any financial impact on the (RIL) shareholders simply because they are wholly owned by RIL,” said Rohit Nagraj, sector analyst with Mumbai-based brokerage Angel Broking Ltd. The move would enable RIL to raise money either through the equity route by selling a portion of the stake to a strategic investor or listing it or through debt “which will not come on RIL’s balance sheet but only on the consolidated balance sheet,” he said.
If approval from Centre for the transfer comes through, RIL and Niko Resources Ltd will own a 10% stake each in the gas-rich basin while the four RIL subsidiaries will own the rest.
RIL’s shares fell 2.3 % on the Bombay Stock Exchange on Tuesday to end at Rs2,179.60 even as the Sensex gained 0.22% to close at 14,482.22.
The two firms incorporated in February are owned in equal measure by Reliance Paging Pvt. Ltd and Reliance Industrial Enterprises Pvt. Ltd. Reliance KG Exploration and Production is equally owned by two individuals, Madhusudan Sivaprasad Panda and Bibhas Kumar Gangopadhyay.
Panda and Gangopadhyay are directors in all three subsidiaries — Reliance Krishna Godavari Exploration and Production, Reliance KG Basin E&P and Reliance KG Exploration and Production — that have an authorized capital of Rs10.1 crore each. Panda is a director in six other firms, including Reliance Infrastructure Ltd, Reliance Petroleum Ltd and Reliance Gas Transportation Infrastructure Ltd. Gangopadhyay is also on the board of Reliance LNG Ltd.
Going by their filings with the Registrar of Companies, the two units incorporated in February do not have any paid-up capital as yet. The one incorporated in December 2006 has a paid-up capital of Rs1 lakh.
RIL and RNRL are battling it out over 28 mscmd (million standard cubic metres per day) of gas with the latter demanding that it be supplied for 17 years at $2.34 per MBtu (million British thermal units).
At a Bombay high court hearing last week, government counsel T.S. Doabia had said the contact between NTPC and RIL was not a “concluded” one, forcing NTPC lawyers to write to their counterpart in the petroleum ministry on 23 August that the statements were “factually incorrect and contrary to the stand” taken by NTPC till now.
RNRL is relying on the NTPC-RIL contract to stake its claim on the gas to be pumped out of KG basin.