Have investors gained from their investments in RPL?

This may be some kind of a record for a capital intensive, green-field project of the size, scale and magnitude that Reliance Petroleum boasts of.

The Rs 14,250 crore refinery, which began commercial production on 1 April 2000, has paid its maiden dividend of 5 per cent in the very first year of commercial production involving a pay out of Rs 262 crore.

Industry sources claim RPL is the only refinery set up in the last two decades, which has declared a dividend in the very first year of operations. Experts point out this is a classic example of what effective and efficient cost planning can do as the refinery has been set up at 30 per cent to 50 per cent lower per-ton capital cost in comparison to other refineries set up in Asia. They say lower capital cost per ton has not only helped the refinery to pay dividend in the very first year of commercial operations, but has also enhanced its ability to capture growth opportunities in India and abroad.

Recording an average capacity utilisation of 95 per cent in comparison to 91 per cent achieved by other Indian refineries in fiscal 2001, RPL processed 25.7 million tons of crude during the year. In fact its capacity utilisation compares very favourably with North America 93 per cent, Europe 86 per cent and Asia Pacific 96 per cent.

Notching sales of Rs 30,963 crore in the year ended 31 March 2001, RPL became country’s largest private sector company in terms of sales. Posting operating profit of Rs 3,274 crore, cash profit of Rs 2,125 crore, net profit of Rs 1,464 crore and by achieving a net worth of Rs 8,727 crore, it has booked a place for itself amongst the top companies in India, second only to Reliance Industries Ltd. It continues to do well in the current year having achieved a capacity utilisation of 107 per cent in the first two months of the current year.

RPL is an excellent example of Indian capabilities and Indian entrepreneurship. The Indian government had issued several letters of intent to various private sector companies including multinationals for setting up refineries with crude processing capacity totalling about 100 million tons per annum. Only RPL has been able to successfully implement the project. In doing so it has become the largest refinery in Asia and the 7^th largest in the world.

It is the world’s largest grass-root refinery and is the only refinery in India, which is capable of producing gasoline with less than 1 per cent benzene content and diesel with less than 0.05 per cent sulphur content. It, thus, meets international product specifications such as those of US reformulated gasoline and Euro 111 standards.

Little wonder then that RPL achieved record exports of 6.80 million tons valued at Rs 6,410 crore, in the process earning the distinction of becoming country’s largest manufacturer exporter. Its products have gone to 19 countries including discerning markets of USA and Europe. In the last one year, from being a net importer, the country has become a net exporter of petroleum products. RPL’s contribution to foreign exchange savings, during the year, have been estimated at Rs 4,546 crore.

RPL’s return on equity at 21.60 per cent is amongst the highest in refining companies globally. Investors have found huge fancy for RPL scrip, whose buying spree has sent its market capitalisation soaring to touch around Rs 26,000 crore, thereby making it amongst the top five private sector companies in India in terms of market capitalisation. Not surprising therefore that RPL finds a place in the three most important benchmarks, the BSE sensex, the NSE nifty and the MSCI-EMF, also known as the Morgan Stanley-Capital International Emerging Markets Free Index. Having been dropped from the MSCI-EMF last year, RPL was re-included in the reshuffle that took place on 19 May 2001. Its weightage in the sensex continues to hover at around 10 per cent and in the nifty at around 8.75 per cent.

With its debt equity ratio conservatively placed at 0.86:1, institutions have found the company financially attractive. Its financial strengths have enabled it to obtain approval for country’s largest ever syndicated foreign currency term loan facility aggregating $ 750 million or Rs 3,500 crore. Agreements for $500 million have already been signed and others are expected to be finalized in the near future. This is the largest ever offshore financing in a single tranche from the country, more than 3 times in size compared to any previous transaction from the country, either from the private or the public sector. The financing is also the first corporate balance sheet financing of any size from a company with just one-year of commercial operations and without any recourse to guarantees or support.

Have investors gained from their investments in RPL?

That is only answering the obvious and the gains have been huge by any standards. The RPL scrip was trading at around Rs 15 about three years back from where it has multiplied three and a half times to currently trade at around Rs 50. In fact it had touched a high of Rs 70 in the last one year.

The biggest gainer of course in this saga has been Reliance Industries Ltd and its shareholders. Reliance currently holds 64 per cent stake in the company and has decided to offload 13 per cent or 676 million shares to strategic investors through the GDR route. It has already obtained government’s permission for a maximum of $1 billion issue. An option was given to all investors to exit RPL the same way. However, as per press reports, the response has not been too good, with most opting to hold on to their investments.

The issue, which will get completed in one or more tranches, is being managed by Morgan Stanley and Deutsche Bank. Though the name of a strategic investor is still unknown, names of Shell or Petronet are being bandied about by various sources. Reliance itself is expected to rake in upwards of Rs 3,750 crore on selling 13 per cent stake in RPL, which it plans to invest in the infocom project the size of which has been raised to Rs 25,000 crore from Rs 15,000 crore. It will make huge capital gains on the same, having acquired RPL shares at an average price of Rs 17.

This will be the first time that a company will be issuing GDRs against existing equity shares, without increasing or decreasing the existing equity capital. This arrangement became possible after two-way fungibility of shares was allowed by the last Union budget.

Pipeline projects

To facilitate distribution of petroleum products across the country RPL has made/is making investments in pipeline projects. It already holds a 13 per cent stake in Petronet VK Ltd., which owns a 113 kilometer long Vadinar Kandla pipeline. This pipeline links RPL’s refinery to the Kandla Bhatinda pipeline, providing access to North and North-West markets. RPL also holds a 26 per cent stake in a joint venture, which envisages setting up a 1,615 kilometer pipeline to feed the landlock markets of Central India. It will also hold a 10 per cent stake in Petronet India, the holding company set up for creation of pipeline infrastructure for evacuation of petroleum products all over India.