Rel Power's valuation to be twice that of REL

Anil Ambani's Reliance Power will be valued nearly two times its holding company, Reliance Energy, after the mega initial public offer. The notional value of Ambani's personal wealth will also go up by at least Rs 42,000 crore.

In its prospectus, Reliance Power has said that it would dilute 11.5 per cent of the post-issue equity.

According to market estimates, the IPO, which will be the largest in the Indian market, is aiming to raise Rs 8,000 crore. This means the company will be valued at nearly Rs 70,000 crore.

At today's closing price of Rs 1,523 per share, Reliance Energy is valued at nearly Rs 35,000 crore. The stock has risen over 50 per cent in the past one month.

Reliance Energy and Ambani's investment vehicle, AAA Projects Ventures, hold 50 per cent each in Reliance Power.

Post issue, both these companies will hold 45 per cent each and Ambani will control nearly 61 per cent (direct and indirect) equity in the company. Ambani's direct holding will be 45 per cent through AAA Projects and 16 per cent through Reliance Energy.

Critics, however, said Reliance Energy should have executed all the power projects on its own instead of transferring them to Reliance Power. In that case, they argued, the biggest beneficiary would have been all the shareholders of Reliance Energy, including financial institutions.

They also said that Reliance Energy transferred the projects to Reliance Power without the consent of its shareholders.

However, a banker close to the developments said the criticism was misplaced. "The Ambani group's plan is to establish Reliance Power as a pure-play power generation company while Reliance Energy would continue to focus on EPC and distribution," he said.

Reliance Power's plan to raise funds to finance six projects comes a year after his elder brother Mukesh Ambani went for an IPO for Reliance Petroleum.

But the difference is that while Mukesh Ambani could showcase the success of Reliance's existing refinery at Jamnagar in Gujarat, Reliance Power does not have a single project to show.

Reliance Power has admitted to this disadvantage in its prospectus. The IPO proceeds will be utilised to part finance implementation of six projects "� the 600 mw Rosa phase I, 600 mw Rosa phase II, 300 mw Butibori, 3,960 mw Sasan, 1,200 mw Shahapur and 400 mw Urthing Sobla project.

The cost of the six projects is estimated at Rs 31,789 crore. The company will finance 80 per cent of cost through debt and the balance 20 per cent through equity.

There are certain regulatory issues related to the offer as well. The company has sought Sebi's permission to issue shares with a face value of Rs 2.

The existing norms permit issue of shares with such a face value only at over Rs 500 apiece, but the Reliance Power IPO is expected to be priced at Rs 60-70 a share.

The Sebi has so far permitted only one company "� Purvankara "� to issue shares with a face value of Rs 2 though the price was below Rs 500.

Bankers said the reason behind Reliance Power's move to bring down the face value of the shares was to encourage participation by retail investors.

Drawing retail investment of nearly Rs 2,100-2,400 crore (30 per cent of the issue size) was a tough task, they said.

Questionnaires sent to the Securities and Exchange Board of India and the Anil Ambani group did not elicit response.

A spokesperson for the Ambani group said they were waiting for Sebi's approval. He, however, said certain vested interests were trying to stall the IPO through a "vicious campaign motivated by frustration and the continuing success and the driving valuation of the group."