Reliance may transfer 80% in KG D-6 to four affiliates

Reliance may transfer 80% in KG D-6 to four affiliates

Reliance Industries (RIL) is planning to transfer 80% of its participatory interest (PI) in the famous D6 block in the Krishna Godavari (KG) basin to four unlisted subsidiaries. Valued at nearly $50 billion with 14 trillion cubic feet of gas reserves, this is the arguably the most valuable asset held by the company. These four entities — Reliance KG Exploration and Development, Reliance KG D6 E&P, Reliance KG Basin and Reliance E&P KG — have recently become majority-owned subsidiaries of RIL. RIL has sought the petroleum ministry’s approval for this.

The ministry, in turn, has asked the upstream regulator, the Directorate General of Hydrocarbons (DGH), to furnish a list of similar cases where more than 50% of PI in blocks have been transferred to affiliates. A source familiar with this development told ET: “This is a usual practice in the global oil and gas business. It will provide greater financial flexibility to these subsidiaries for raising funds.” However, Director General of Hydrocarbons VK Sibal declined to comment, saying he has not seen any such request from the company. The RIL spokesperson too declined to comment on the issue. An email sent to Niko Resources, which holds 10% stake in the block, failed to elicit any response.

RIL holds 90% participating interest in the block. The exact value or structure of the transaction by which RIL would transfer its stake to the four subsidiaries could not be ascertained. However, it is learnt that RIL will continue to be operator of the block with at least a 10% stake, post the transaction. An analyst with an international research firm said: “The four affiliates will have strong balance-sheets, with a part of the KG basin assets. This will help them bid for global oil and gas assets. It also means that these companies may raise funds, if required, for their overseas bidding without stretching the RIL balance-sheet.” The analyst cautioned that there may be a perception that the interest of RIL shareholders may be affected by transferring this asset to the subsidiaries if it does not hold very large equity in them after the transaction. RIL’s exact shareholding in these four unlisted firms could be not ascertained.

What is known is that these firms are subsidiaries of RIL, meaning RIL’s shareholding may vary from 51-100%. However, the source quoted earlier said there would be no impact whatsoever on RIL’s shareholders as the subsidiaries were majority-owned and controlled by RIL.

Last week, in the course of his arguments, the government counsel TS Doabia had said in the Bombay High Court that RIL cannot transfer or assign its participating interest in favour of any other company without government approval, under the provisions of the production sharing contract. Mr Doabia made this comments in response to RNRL’s counsel Ram Jethmalani. Mr Jethmalani had asked for the transfer of RIL’s participating interest in the KG basin to RNRL so that the latter can sell the gas till its proposed 7,800 mega watts (MW) power plant at Dadri comes up. “RNRL will sell the gas in line with the government policy as is the case with RIL.

The government counsel’s submission that Mukesh only can sell gas but Anil cannot is biased. If needed, the court can direct transfer of PI in PSC to RNRL to enable RNRL to sell the gas. RNRL is prepared to share RIL’s investment for the development of the KG basin proportionately,” said Jethmalani in his submission to the court last week. He also said that RNRL is ready to invest Rs 25,000 crore for this. Production from the KG basin is likely to commence in the December quarter.

The company will initially produce up to 40 million metric standard cubic meters per day (mmscmd) of gas, which would be scaled up to 80 mmscmd by 2010. The sale of gas from the initial production is disputed and the Bombay High Court has restrained the company from selling gas to any third party besides NTPC and RNRL. RIL is embroiled in separate legal battles with NTPC and RNRL. On the BSE, RIL shares declined by a marginal 0.65% or Rs 14.7 to close at Rs 2230.95 on Monday. The stock has gained 0.27% over the past one week and 3.89% in the last one month.

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Source:ET,SIfy.