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Mukesh Ambani’s Move to Checkmate Chevron

November 26, 2007

Are you worried about sky rocketing fuel prices ? You wouldn’t be, if you are a shareholder of RIL. Mukesh Ambani’s intelligent move to bring in Chevron was one of the cleverest moves to create wealth for RIL shareholders. RIL is a cash rich company and it could have gone solo for the Reliance Petroleum Ltd [RPL] project, instead in the usual Ambani style it is creating wealth on others money 🙂

RIL held 75% and Chevron held 5% in RPL, remaining 20% is being held by others. RIL has acquired the shares at various prices with effective purchase price around Rs 20. It sold 4.01% stake in RPL at Rs 4023 crore thus making a profit of Rs 3662 crore for RIL shareholders.

Now according to IPO offering for Chevron, the latter has an option to increase the stake upto 29% in RPL by April-2009. Chevron would also be eligible for 5% discount on refining done at RPL. If Chevron does not exercise its option to increase its stake to 29% by the stipulated period, RIL will buy back Chevron’s 225 mn shares (5% stake) at Rs60, Chevron’s initial purchase price.

Based on the last traded price of RPL (Rs 210), Chevron would have to pay Rs226 bn (US$5.7 bn) to RIL for the additional 24% stake (1.08 bn shares). Chevron’s total acquisition cost for 29% equity stake in RPL would be Rs240 bn which is very close to the entire project cost of Rs 270 bn.

RIL has effectively invested Rs67.5 bn [Rs 6750 crore or $1.68 bn] in RPL for its 75% stake. After the 4.01% stake sale [Read beginning of article], its effective investment in RPL is 27.3 bn [Rs 2730 crore] for its 71% stake.

Hats off to Mukesh’s intelligent moves to create wealth for RIL shareholders 🙂 Questions and Comments are welcome.

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