India''s Reliance Industries to absorb subsidiary
March 2, 2009
The Associated Press reports that India''s Reliance Industries Ltd. will absorb its Reliance Petroleum subsidiary through a share swap, consolidating its control of the world''s largest refinery complex, the companies announce after both boards approved the merger. Reliance Petroleum operates a 580,000 barrel-a-day refinery at Jamnagar, in the northwestern state of Gujarat, which is adjacent to a 660,000 barrel-a-day refinery run by Reliance Industries. The merger brings both refineries under the control of Reliance Industries, creating what the company says is the world''s largest refinery complex. Reliance will also buy back Chevron''s 5 percent stake in Reliance Petroleum. In 2006, Chevron India Holdings Pte. Ltd., Singapore, a wholly owned subsidiary of Chevron Corp., spent about $300 million for a 5-percent stake in Reliance Petroleum. It had to decide this year whether to up its stake to 29 percent or exit the project. Amid the economic downturn in the global demand for refined products, Chevron decided to bow out. The company is confident that Reliance will maintain profits even as global demand for petroleum products softens because complex refining like that done at Jamnagar has higher margins, and the two refineries will focus on growing markets, like producing ultra-clean fuels for export to Europe. Analysts said the merger will allow Reliance, which previously owned 70-percent of Reliance Petroleum, to consolidate cash flows at a time when borrowing is becoming increasingly expensive on global markets. Over the last four years, Reliance Industries has spent close to $20 billion on investments, a large part of which has been funded through debt, according to a report from Indian ratings agency CRISIL, a Standard & Poor''s affiliate. Reliance''s two coastal refineries get most of their crude by ship from the Middle East, as well as from Venezuela and Iran. They export most of their refined petroleum to Asia and Europe.