RIL may sell 15-20% stake in RPL to pvt equity

Reliance Industries Ltd is learnt to have begun talks with a clutch of private equity players and hedge funds to offload about 15-20 per cent stake in its wholly owned subsidiary Reliance Petroleum (RPL). Analysts said the deal could yield nearly $2 billion (around Rs 9,000 crore).

The India chief of a foreign private equity fund confirmed his firm was in talks with RIL. He added that hedge funds had also shown interest in acquiring stakes in RPL. But an RIL spokesperson said he was unaware of any such plan.

Analysts said the move was aimed at creating value for RIL shareholders as the fund, to be raised from the planned sale of stake, would be ploughed back into the company's balance sheet.

"RIL shareholders stand to get the benefit of the setting up of an export-oriented refinery by RPL. While debt raised for the project will be on the books of RPL, the fund generated through private placements will find its way into the parent company's balance sheet," they said. It is indeed a win-all situation for RIL shareholders," they pointed out.

The project will also get tax benefits.

Investment banking sources said after the sale of stake to private equity and hedge funds, the RIL's shareholding in the RPL would come down to 80 per cent.

This would be followed by a public float by RPL, which would further reduce RIL's shareholding on the expanded equity of RPL, they said.

The sources added that the stake-sale to private equity and hedge funds would help price the public float. The entire process is expected to be completed in the first quarter of the next financial year.

According to the investment banking community, hedge funds will be more interested in buying RPL stakes than private equity funds. This is because of the weakness in refining margins.

"RIL's refining margin came down to $9.1 per barrel in the third quarter from $9.8 per barrel a year ago. This is, however, better than the Asian average of $6.3 a barrel. At this juncture, it is easier to take a short-term call on the refining margin and a hedge fund is equipped to do that better than a typical private equity fund," investment banking sources said.

RPL is setting up a $6-billion (Rs 27,000 crore) refinery project at a special economic zone at Jamnagar in Gujarat. The project is expected to start commercial production by the second half of 2008-09.

It will be funded through a combination of debt and equity. Reliance Petroleum will raise debt worth $3.5 billion (Rs 16,000 crore) and equity of $2.5 billion ( Rs 11,000 crore).