History of Mergers of Reliance Industries Limited (RIL)

In May 1973, a company named as Mynylon Limited was incorporated in

Karnataka to manufacture synthetic blended yarns and fabrics, polyester
filament yarn, polyester glass shells and colour television picture tubes. In
February 1975, a company by the name Reliance Textile Industries Limited
(RTIL) was incorporated in Maharashtra. On 1st July, 1975 RTIL was merged
with Mynylon Limited and name of Mynylon was changed to Reliance Textile
Industries Limited (RTIL). Thus, one can see that the birth of today’s RIL
took place through a merger.

In October 1977, the promoters (Ambanis) made an offer for sale of 2820000
equity shares of Rs. 10/- each at par and consequently the company was listed
on the Bombay Stock Exchange in January 1978. In June 1985 the name of the
company was again changed to Reliance Industries Limited (RIL).

Till 1988, RIL mainly followed the organic growth strategy by setting up
plants in its Patalganga Complex. Polyester filament yarn (PFY) phase I was
commissioned in 1982, followed by phase II in 1985. In 1986 it commissioned
polyester staple fibre (PSF) and purified terephthalic acid (PTA) plants in the
same complex. This was followed by commissioning of linear alkyl benzene
(LAB) plant in 1987 and paraxylene (PX) plant in 1988 in the same complex.

Simultaneously, in 1987, Reliance Group had incorporated a company named

Reliance Petrochemicals Limited (RPL) to develop the first phase of its Hazira
Complex by setting up plants to manufacture ethylene oxide (EO), mono
ethylene glycol (MEG), vinyl chloride monomer (VCM), poly vinyl chloride
(PVC) and high density polyethylene (HDPE). This company came out with a
public issue of approx. 74.93 crore equity shares of Rs. 10/- face value at par
to raise Rs.749. 28 crore to part finance this phase I of Hazira Complex. After
the first phase was commissioned in 1991, RPL was merged with RIL. The
merger, which happened on 1st March 1992, had a swap ratio of 1:10.
Shareholders of RPL were issued, for every 10 shares of RPL, one share of
RIL. In a way, this was a backdoor premium issue by RIL.

In 1992, Reliance Group had come out with a simultaneous issue of equity
shares at par (face value Rs. 10/-) and optionally convertible debentures
(OCD) convertible at the price of Rs. 50/- per share for each of its twins i.e.
Reliance Polyethylene Limited (RPEL) and Reliance Polypropylene Limited
(RPPL). These companies, which were popularly known as ‘Illu’ and ‘Pillu’,
respectively, in the stock market those days, had been promoted to develop
second phase of Hazira Complex by setting up plants to manufacture
polyethylene and polypropylene respectively. These issues had received huge
response from the public. Prior to these issues, the promoters had allotted
hefty chunk of equity at par to themselves. Though the promoters participated
in the OCD issue, it was to much lesser extent than public. Thus the cost of
one equity share of RPEL worked out to Rs. 14.31 to promoters whereas the
same was Rs. 34.13 to the public. In case of RPPL, these numbers were
respectively Rs. 16.61 and Rs. 33.61. In financial year 1994-95, these
companies were merged with RIL with a swap ratio of 1:4 in case of RPEL
and 3:10 in case of RPPL. As a consequence, the equity capital of RIL went
up only by approx. Rs. 99 crore but with a whopping addition of approx. Rs.
700 crore to its reserves. Public shareholders of RPEL and RPPL got RIL
shares at Rs. 136.52 and Rs. 112.03 respectively, whereas the promoters got
them at Rs. 57.24 and Rs. 55.40 respectively. (The share price of RIL was in
the range of Rs. 350-400 at that time).

In 1993, Reliance Petroleum Limited (RPL), a Reliance Group company, had

come out with an IPO offering triple option convertible debentures (TOCD) to
part finance its 9 million tonne green field refinery project at Jamnagar. The
size of the issue was Rs. 2172 crores of which net offer to public was Rs. 862
crores. The project was scaled up twice during the implementation stage –
from 9 million tonnes to 18 million and then to 27 million. Hence the project
got delayed and was commissioned in the financial year 1999-00. It posted a
sterling performance in the first full year of operations i.e. 2000-01 with the
turnover crossing Rs. 30000 crore and net profit of Rs. 1464 crore to become
the largest private sector company in India, ahead of RIL. In 2001-2002 it
bettered its performance by posting turnover of Rs. 33117 crore and net profit
of Rs. 1674 crores. In March 2002, Reliance Group announced merger of RPL
with RIL with retrospective effect from 1st April 2001. The process was
completed with RIL allotting shares of RIL to shareholders of RPL in October
2002 in the ratio of 1:11. In this case again, while RIL’s equity capital went up
by only Rs. 343 crore, amalgamation added approx. Rs. 11950 crores to its
reserves. More importantly, RIL’s turnover in 2001-02, which would have
been approx. Rs. 24000 crore, shot up to Rs. 57000 crore on account of RPL’s
turnover of Rs. 33000 crore, making it the largest private sector company in
India.

RIL played the same rope trick again in 2006-07. In 2002-03, it had acquired
46% stake in IPCL through its investment company Reliance Petro
Investments Limited at the cost of approx. Rs. 2638 crore. In March 2007, RIL
announced IPCL’s merger with itself retrospectively from 1st April 2006 and
with the swap ratio of 1:5. This merger led to RIL equity capital going up by
just Rs. 60 crores while its reserves shooting up by approx. Rs. 5460 crores. It
also added approx. Rs. 12000 to 13000 crore to the turnover of RIL in 2006-
07.

And lo and behold! While this book was going to press, on 2nd March, 2009,
RIL and RPL (Reliance Petroleum Limited) boards announced the merger of
RPL into RIL with a swap ratio of 16:1 i.e. 1 share of RIL for every 16 shares
of RPL. This is the third “RPL” of Reliance Group, that like the first two
mentioned above, is being merged with RIL. As we know, this RPL has set up
the second refinery of Reliance Group close to its first refinery at Jamnagar.
This new refinery went on stream in Dec 2008 and is being merged with RIL
with retrospective effect from 1st April 2008.

At the time of merger announcement RIL held 70.3 percent stake in RPL’s
equity, while the western oil major Chevron held 5 percent, rest being with the
public. Chevron had an option to increase its stake to 29 percent subject to
Chevron signing crude supply and product off-take agreements. While it is
believed by some that the failure of RPL and Chevron to sign crude supply
and product off-take agreements, as a consequence of which it was decided
that RIL will buy Chevron’s 5 percent stake, was the trigger for merger
(Economic Times dated 3rd March, 2009). Some others believe that RPL was
expected to incur substantial losses in the first quarter of 2009 (the first quarter
of its operations also) and the merger was being done to avoid declaring
standalone results of RPL for the year ending 31st March, 2009 (Economic
Times dated 28th Feb 2009). However, in reality neither the merger nor its
timing is any surprise. As can be seen from the earlier paragraphs, it is a part
of the in organic growth strategy followed by Reliance Group. Let us see how
RIL would look post this merger.

Post this merger, RIL is expected to be largest company by market

capitalization, ahead of the present largest i.e. ONGC. In terms of sales and net
profits, it is expected to be second only to Indian Oil Corporation (IOC). Post
merger, RIL is expected to have 19.7% of the total turnover and 16.5% of the
total profitability of the 30 SENSEX companies (Economic Times dated 28th
Feb 2009).

Post merger RIL’s turnover for 2009-10 is estimated to be Rs. 2.60 lac crores
as against 2008-09 standalone estimate of Rs. 1.60 lac crores; its net profit for
2009-10 is estimated to be over Rs. 29000 crores against 2008-09 standalone
estimate of over Rs. 20700 crores. While its equity capital will go up by only
Rs. 69 crores (4.4%) from Rs. 1574 crores to Rs. 1643 crores, immediately
post merger, its networth is estimated to shoot up to Rs. 1.05 lac crores as of
31st March 2010 from the estimated standalone networth of Rs. 84000 crores
as of 31st March 2009 (Economic Times dated 3rd March 2009).

Thus we can see how ‘merger’ has been used very effectively as a growth
strategy by the largest private sector company in India.

One must, however, understand that barring merger of IPCL, all other mergers
into RIL mentioned above were of the group companies. Thus, while at RIL
level the growth happened by inorganic route through mergers, at Reliance
Group level it was still an organic growth.
Sources: 1. www.ril.com, 2. Past annual reports of RIL, 3. Economic Times
dated 28th Feb 2009, and 3rd March, 2009.
© 2009, Prasad Godbole.