Demerger-merger model for power, finance SPVs to avoid dual listing

Mumbai, Aug 3 | Updated: Aug 4 2005, 05:51am hrs
The demerger of the power and financial services businesses of Reliance Industries would follow a model of demerging the SPVs and then merging them into the two listed companies, Reliance Capital and Reliance Energy. ADAE Group chairman Anil Ambani said this model had benefits like avoidance of dual listing, enhancement of liquidity and better price discovery. For the third, a holding company, Reliance Communication Ventures Ltd, would be listed.

Anil Ambani said on the RCL front, RIL shareholders would get about 5 shares of RCL for every 100 shares held in RIL. This would be achieved by merging an SPV, Reliance Capital Ventures Ltd, the resulting company from the RIL reorganisation, into RCL so that there is a single listed entity for the RCL part.

The ADAE stake in RCL would settle at 50.5% and RILs would fall to nil from 47.9%. Similarly, on the REL side, another SPV created for the reorganisation, Reliance Energy Ventures Ltd, would be merged with REL, and RIL shareholders would get 7 shares for every 100 RIL shares held. ADAE will eventually hold 31.7% in REL, while RILs stake will fall to nil from 52.6% now. On the new entities side, Mr Ambani said GFMS would be the holding company that would have the contracts for supply of natural gas from RIL.

This is being done purely in the interests of transparency, he explained. The gas contracts would soon be signed and would be used for the Reliance Energy Groups power generation projects aggregating over 11,000 MW mainly in Uttar Pradesh and Maharashtra and also in other parts of the country.

ADAE would hold 37% in GFMS while 35.2% would be with foreign investors. RIL shareholders would get 100 shares for every 100 shares of RIL. The company would have an equity capital of Rs 611 crore. Mr Ambani said while for the moment GFMS would concentrate on gas supplies for the ADAE group, at a later stage global fuel management activities could be taken up. Reliance Communications Ventures Ltd, on the other hand, would be the holding company for the infocomm group of companies, comprising Reliance Infocomm, Reliance Communi cations Infrastructure Ltd, Reliance Telecom and Flag Telecom.

This would be the listed entity, he said, adding that this meant there was little likelihood now of Reliance Infocomm itself being listed. RCVL would hold 65.9% stake directly and indirectly in Reliance Infocomm, and 35.2% in Reliance Telecom.

RIL shareholders would get 100 shares of RCVL for 100 shares in RIL. RIL shareholders have been benefited to the tune of Rs 10,000 crore because of the conversion of RILs preference shares in Infocomm at Rs 32 a share, while the conversion price estimated earlier could have been much higher at Rs 105 per share, Mr Ambani said. ADAE shareholding in Reliance Infocomm will stand at 34.1% at this price.