CaVeAt EmPtOr!! The oil sector is on the verge of deregulation.. to take on the high profile international competition now expected in the domestic market, a high cash flow generating entity with a strong balance-sheet was indispensable. And the RIL-RPL merger could not have been timed better. The move should not come as surprising at all.. but when it did happen, it caught company watchers and market alike off-guard...
The move looks to be a masterstroke but the shareholders' benefits are unclear... RPL's refinery is considered to be more efficient than that of RIL. Concurrent with the market value criteria, the swap ratio turned out to be 16:1, which could have been quite different, had RIL waited for RPL to start production, what would then have been a fair value based on the projected strengths.
Both companies enjoy a tax holiday: RIL's refinery has export oriented unit status till March 2010, but after that there is no clarity. RPL's refinery will have tax-benefits for five years from the first day of commercialisation, anticipated to be sometime in April at the latest. There is another catch for competition in the merger. As a separate entity, RPL would have to make public its refining margins; to the convenience of investors, as they would have been able to compare the margins of RPL vis-a vis RIL, to their advantage. With the merger, there is just one number which it has to publish.
Not having to incur double tax cut on dividents sounds music to investors' though...
The move looks to be a masterstroke but the shareholders' benefits are unclear... RPL's refinery is considered to be more efficient than that of RIL. Concurrent with the market value criteria, the swap ratio turned out to be 16:1, which could have been quite different, had RIL waited for RPL to start production, what would then have been a fair value based on the projected strengths.
Both companies enjoy a tax holiday: RIL's refinery has export oriented unit status till March 2010, but after that there is no clarity. RPL's refinery will have tax-benefits for five years from the first day of commercialisation, anticipated to be sometime in April at the latest. There is another catch for competition in the merger. As a separate entity, RPL would have to make public its refining margins; to the convenience of investors, as they would have been able to compare the margins of RPL vis-a vis RIL, to their advantage. With the merger, there is just one number which it has to publish.
Not having to incur double tax cut on dividents sounds music to investors' though...
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2 comments:
Though a admirer of reliance's strategy yet i dont feel the RPL refinery has come up at a right time...it was a serious miscalculation on the part of Reliance of opening up a refinery at a time when world over there is suprlus refinery capacity .Its rather a matter of helplessness tht RIL had to merge both refineries and hunt for storage facilities at singapore and europe for its huge output.Reliance has the tradition of creating share holder wealth by bringing up more entities in the stockmarket but this move is a desperate attempt by RIL to save its face . better luck Reliance...@m
hehehe finally a post on the oil sector in this blog.
I didn't know about this tax holiday thing, now the whole merger makes more sense to me.
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