Breaking News ! ….RIL and RPL Boards to Meet on March 2,2009 to consider and recommend that RPL amalgamates into RIL!

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Ambanis of Reliance have adopted this modus operandi without fail the past 25 years…They create new companies for similar business…and when they commence production,they amalgamate them into the Parent, RIL…in a sense give birth to Children and bring them back into the Parent fold

So I was not surprised at all when the Breaking News  hit that the Boards of RIL and RPL are meeting seperately on March 2,2009 to consider and recommend the amalgamation of RPL into RIL…In fact for years I have been stating that this will inevitably happen…What must have pushed RIL now is that the Margins are under pressure in both, RIL and RPL, and RIL is carrying Huge Inventory losses as it had entered into Oil Contracts at US $ 120+ per barrel in mid 2008…Oil is now crashed to just over US $ 40 per barrel…Clearly RIL sees Cashflow,Tax,Valuation,Scale and Leverage Synergies in this Amalgamation  

This Breaking News will Break RPL Shareholders…Closing Prices,adjusting for a possible fall in the price of RPL on Opening on Monday and adjusted Book Values indicate an amalgamation ratio of 1: 20

RPL Shareholders will not get to see really how much RPL really makes on the bottomline in it’s first full year of production !….This is the devious part really……Falling Gross Refining Margins would have meant a very low bottomline for RPL….With Equity at Rs 4500 crs +,it would have been seen as a loss of Group image in not being able to service the equity 

The April 2006 IPO of RPL was at Rs 60…That’s where the price will settle…It may sink even lower…Current Price is Rs 76 while RIL closed at Rs 1265

As a stand alone Refinery,RPL would have got Earnings Valuation Multiples of much below 10….and much below Overseas Peers….FY 2010 would have shown Earnings in the low range of Rs 2 to Rs 4…despite a low floating stock of under 10%,the share price would have reacted quite sharply…With the amalgamation this scenario will not play out

Long Term RPL Shareholders have been short circuited…Just think about this !…in April 2006,you invested in RPL at Rs 60…assuming the ratio is 1:20,your cost of the RIl Share would work out to Rs 1200 right now…in April 2006,RIL was Rs 825-850 at the time of the RPL IPO

So,in April 2006 if you had invested in RIL, and were yet holding the shares you would have made 50% + gains…Twice that you would have made by investing in the RPL IPO at Rs 60 and yet held the share read more