Presented by : Tarun Bherwani 8107 Reena Gala 8119 Shraddha Kothari 8137 Pooja Shah 8148 Pooja Sharma

8151 Jigar Upadhyay 8159

Overview of the Oil & Gas Sector

The oil and gas industry has been instrumental in fuelling

the rapid growth of the Indian economy. The petroleum and natural gas sector which includes transportation, refining and marketing of petroleum products and gas constitutes over 15 per cent of the GDP.
Petroleum exports have also emerged as the single largest

foreign exchange earner, accounting for 17.24 % of the total exports in 2007-08. Growth continued in 2008-09 with the export of petroleum products touching US$ 23.63 billion during April-December 2008.
India's domestic demand for oil and gas is on the rise. As

per the Ministry of Petroleum, demand for oil and gas is likely to increase from 176.40 million tonnes of oil equivalent (mmtoe) in 2007-08 to 233.58 mmtoe in 2011-

Cont
India is emerging as the global hub for oil refining

with capital costs lower by 25 to 50 % over other Asian countries.

According to a recent KPMG report India's energy

sector will provide investment avenues worth US$ 120 billion-US$ 150 billion over the next five years. According to the Investment Commission of India, the total opportunity in the oil and gas sector is expected to reach US$ 35 billion to US$ 40 billion by 2012.

RELIANCE INDUSTRIES LTD

RIL

Reliance Industries Limited was set up by Late Dhirubhai H. Ambani in 1966 and is India's largest private sector company with interests in materials value chain and energy. Ranked 193rd in Forbes Global 2000 list of companies. Ranked among top 150 companies of the world in terms of profits. Initial public offering (IPO) in 1977. Growth through backward vertical integration. - Textiles, - polyester, - fiber intermediates, - plastics, - petrochemicals, - petroleum refining , - oil and gas exploration and production.

Cont
Awarded in the categories of Exploration and

Production Company of the Year' and Refinery of the Year by PetroFed Association. It also received Outstanding Achievement in Oil Refining award from Chemtech Foundation in 2007.

RIL is credited of being :

i) Largest producer of polyester fiber and yarn in the world. ii) Among the top five to ten producers of the world in major petrochemical products.

Cont
Indias largest private sector enterprise with strong

financials: Revenue exceeds $ 33 billion Exports of about $ 21 billion EBITDA of over $ 5 billion

CRITERIA Net Sales Net Worth Total Assets Net Profit

2008 206 161 273 103

GLOBAL RANKING 2007

269 190 299 179

RELIANCE PETROLEUM LTD

RPL

RPL is a subsidiary of Reliance Industries Limited (RIL). It commenced its business in November 2005. The Company formed to set up a greenfield petroleum refinery and polypropylene plant to be located in a Special Economic Zone in Jamnagar in Gujarat. This global sized, highly complex refinery is located adjacent to RILs existing refinery and petrochemicals project. With the completion of the RPL refinery, Jamnagar has emerged as the Refining Hub of the World with the largest refining complex with an aggregate refining capacity of 1.24 million barrels of oil per day in any single location in the world.

Cont
It ranks as the 6th largest refinery in the world and is also

amongst the worlds most complex refineries with an annual crude processing capacity of 580,000 barrels of oil per stream day (BPSD).
The RPL refinery is located on the west coast of India which

is in close proximity to the Middle East, the largest crude oil producing region in the world. This is expected to result in lower ship turnaround time and reduced crude freight costs.
Among the top 5% refineries globally with capability to

process ultraheavy crude Built to supply ultra-clean fuels to meet the worlds evolving needs. Focus on high growth transportation fuel segment.
Lowest US$/complexity-barrel cost among recently built

CHEVRON 5% stake in RPL

Additional 24% Stake In RPL

Exit from Company Altogether

If Chevron had increased its stake to 29%,

RIL which earlier had 71% stake, would now have 47% stake in the company

Cost of 24% stake in RPL for Chevron

2007 $6 billion

As of Now

$1.6 billion

Reasons for Merger

The combined refining capacity will be 1.24

million barrels of crude/day.

Make Reliance in the list of 50 most profitable

companies.

Make Reliance in top 5 producers of

polypropylene.

Enhance weightage in all the stock indices. Give monopoly to RIL in negotiating the crude

price

MERGER DETAILS
The all-share merger deal valued at about Rs
8,500 crore between the two Mukesh Ambani group firms, RIL and RPL, has become probably the 10th-biggest ever for the country and the first billion-dollar deal this year

The merger between RIL and RPL will give the benefit of combined operating profitability to the merged entity. RIL stands to benefit from the depreciation it could show for the RPL refinery to earn additional tax breaks

Merger Rational

Unlock synergies from combined operations Crude sourcing, Product placement, Supply Chain Optimization Greater flexibility in operations planning Expansion of refined product range Optimized utilization of secondary process units and infrastructure Efficient utilization of combined cash flows

Benefits from merger

The biggest benefit for RIL seems to be using additional

cash flows generated by RPL which can be used to step up investment and expansion of its oil & gas exploration business.
Another factor motivating the merger may be the

continuity of tax benefit accruing from a special economic zone for another five years.
RPL is expected to report a profit of about Rs 4,500

crore (Rs 45 billion) in 2009-10 while RIL expects to post a profit of more than Rs 19,000 crore (Rs 190 billion) in 2009-10.

How the merger will help in TAXATION purposes

The move will help the company hedge its bets

against demand challenges globally when the old refinery loses tax incentives once its export-only status ends in March. The Budget rationalized the tax regime for companies that have units in both the domestic tariff area and export zone. Earlier, such companies had to pay higher taxes Reliance Petroleum is totally exempt from tax for first 5 years of operations, followed by 50% tax exemption for the next 5 years. The new refinery will not have to pay excise duty, and service tax for products and services respectively, sourced within India only.

Factors considered for valuations

The market price of the shares The earnings performance The asset base of the company The net asset value and the market price

Challenges
The valuation of the merger between RPL and RIL was a challenge because RPL had just started operating over a month back, while RIL had a more established manufacturing facility.

FUNDING STRUCTURE

Term loan facility for approximately Rs 6,750 crore The company proposes to fund the project through a debt of Rs 15,750 crore and equity of Rs 11,250 crore, including proceeds from the public issue additional equity raised in excess of Rs 11,250 crore will be used as additional contingency for the project Export credit agencies for approximately Rs 4,500 crore to Rs 6,750 crore

ADVISORS

IMPACT OF MERGER PROPOSAL

MARKET SHARE (PRE MERGER)

RIL Pre-merger, RIL had nearly a 62 per cent shareholding in RPL.
Of this 28 per cent

directly held by the company will be now cancelled

RPL The 36 per cent RPL shares held by Reliance Investments Holding Limited a 100 per cent subsidiary of RIL and RIL associates, another holding company will now be put in a trust that will constitute 12 per cent of RIL's equity post merger

MERGER FACTS
Merger ratio of 1 share of RIL for every 16

shares of RPL.

RIL to issue 6.92 crore shares to RPL shareholders. 4.4% increase in equity base from Rs 1,574 crore shares to Rs 1,643 crore. Promoter holding in RIL will reduce from 49% to 47%

RIL's Shareholding pattern post Particulars merger (pre-Merger) Share issued to RIL RIL(post-merger) RPL shareholders No. of shares(cr .) RIL's promoters Treasury stocks RIL's promoters effective stake Others Total 86.59 70.79 157.38 55.0 45.0 100.0 6.92 6.92 4.4 4.4 86.6 77.7 164.3 52.7 47.3 100.0 77.17 9.42 No. of shares(cr .) No. of shares(cr .) 77.2 9.4

(%) 49.0 6.0

(%)

(%) 47.0 5.7

SUMMARY

Indias largest ever merger. RPL shareholders to get 1 share of RIL for every 16 shares of RPL. RILs holding in RPL to be cancelled. No fresh treasury stock created. RIL to be among top 10 private sector refining company globally. RIL to be among the worlds largest producer of Ultra Clean Fuels. Merger to unlock greater efficiency from scale and synergies. Merger to be EPS accretive; AAA rating reaffirmed by CRISIL. RIL to have 3.7 million shareholders.

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