US based oil major Chevron Corporation has agreed to pick up a 5 per cent stake in Reliance Petroleum (RPL), on the eve of its IPO. Chevron would acquire the stake from Reliance Industries Limited (RIL) at Rs60 per equity share for a total consideration of Rs1,320 crore or nearly $300 million.
The transaction has been routed through Chevron India Holdings, a Singapore based subsidiary of Chevron, which would acquire 22.5 crore equity shares of RPL.
After the stake sale to Chevron, RIL''s post-IPO holdings in RPL would come down to 75 per cent. Post IPO, 20 per cent of RPL would be held by institutional and retail investors.
The agreement between RIL and Chevron also provides for sale of an additional 24 per cent stake in RPL to Chevron in future. As and when this additional stake sale happens, Chevron''s stake in RPL would rise to 29 per cent and RIL''s stake would decline to 51 per cent.
Even if the additional stake acquisition is concluded at the same price of Rs60 per share, the total investment by Chevron would go up to Rs7,656 crore or more than $1.7 billion. It is likely that Chevron would pay a higher price depending on the future market price of RPL shares. In any case, this would be the single largest FDI flow into the country so far.
The agreement between RIL and Chevron also covers cooperation between the 2 companies in sourcing of crude oil and marketing of refined products for RPL''s proposed refinery. RPL is building a 27 million tonnes per annum export oriented refinery in Jamnagar, Gujarat.
After the completion of RPL''s proposed refinery, total refining capacity of RIL group in Jamnagar would go up to 60 million tonnes per annum. Jamnagar would then become the largest single location refining complex globally.
The refining capacity shortage in western countries is expected to worsen in future, making it imperative for companies like Chevron to look for alliances in other parts of the world. The RPL refinery would have the ability to process heavy and sour grades of crude oil, which are cheaper. Hence RPL can sell the refined products in far away markets profitably even after the transportation costs.
The RIL statement also said the company would cooperate with Chevron in other areas of the energy value chain. The 2 companies are expected to jointly bid for domestic exploration blocks in the next round of NELP.
The government has already completed the road shows for the next round of NELP which have attracted good interest from oil companies. The government expects an investment of up to $7 billion by successful bidders of this round in exploration.