Reliance Offers 1 Share to Every 16 in Petroleum Unit

By Rakteem Katakey and Archana Chaudhary

March 2 (Bloomberg) -- Reliance Industries Ltd., India’s most valuable company, offered one of its shares for every 16 held in Reliance Petroleum Ltd. as it seeks to buy back its refining unit. Shares in both companies dropped.

Reliance Industries set April 1 for the date of the amalgamation with Reliance Petroleum in a release to the Bombay Stock Exchange today. The takeover is subject to approvals by the high courts at Mumbai and Ahmedabad, the company said.

The plan to acquire the remaining shares in Reliance Petroleum, which started a 580,000 barrel-a-day refinery in December, comes amid excess industry capacity and declining earnings from processing oil because of a slump in global demand for gasoline and diesel. The new plant is adjacent to its parent’s 660,000-barrel-a-day refinery at Jamnagar in Gujarat, making it the largest refinery complex in the world.

“We find the ratio favorable for shareholders of Reliance Petroleum,” said Niraj Mansingka, Mumbai-based analyst at Edelweiss Securities. “We had expected a higher swap of between 18 and 22 considering Reliance Petroleum’s current market value.” Reliance Industries is presently valued at $40 billion compared with $6.9 billion for its unit.

Shares of Reliance Petroleum dropped as much as 8.3 percent in Mumbai today. The stock was down 1 percent at 75.6 rupees at 10:30 a.m. local time. The stock has declined 57 percent in the past year.

Parent Reliance Industries fell as much as 4.2 percent before trading 2.9 percent lower at 1,229.7 rupees at 10:33 a.m. in Mumbai. India’s benchmark 30-share Sensitive index dropped 2.2 percent.

Reliance Industries will also buy the 5 percent stake held by Chevron Corp. in Reliance Petroleum for an undisclosed amount, the Mumbai-based company said in an e-mailed statement on Feb. 27.

Chevron acquired 5 percent of Reliance Petroleum at 60 rupees a share in April 2006. The San Ramon, California-based company said it had agreed to sell its stake in Reliance Petroleum to Reliance Industries in an e-mailed statement on Feb. 28.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Archana Chaudhary in New Delhi at achaudhary2@bloomberg.net.