Reliance Ind plans to absorb refinery unit

India's Reliance Industries Ltd said it plans to absorb its Reliance Petroleum unit, giving it direct control of the world's largest refinery complex and potentially signaling the exit of U.S. oil company Chevron from the subsidiary. Reliance Industries (RELI.BO), India's largest listed firm with a market value of $40.7 billion, said in a statement its board would meet on March 2 "to consider and recommend the amalgamation of Reliance Petroleum Ltd with the company." Reliance Petroleum (RPET.BO), in which Chevron (CVX.N) has a 5 percent holding and an option to increase it to 29 percent by mid-2009 or completely exit, said its board would also meet on Monday to consider and recommend the amalgamation. Both companies' statements were similarly brief and contained no further detail. Analysts say an amalgamation may signal the exit of Chevron, which would otherwise be left with a small holding in Reliance Industries after its stake was converted. "Chevron has gone slow with its investment in various refinery projects. The market was concerned that this (raising stake) would not come through given the global meltdown and price of crude and their overall strategy," said Sharmila Joshi, vice-president sales at brokerage firm Systematix. Another market analyst said, "Chevron will try to exit, though they have the option to raise stake, because their view is that refining cycle is softening." Reliance Petroleum commissioned its 580,000 barrel per day refinery in December, located next to Reliance Industries' 660,000 bpd refinery in Jamanagar on India's west coast. The combined firm would have refining capacity of 1.24 million barrels per day, the largest in the world. "It is vintage Reliance. Most likely the parent's holding will be transferred to treasury stock and sold as and when required at a premium," said Arun Kejriwal, strategist at research firm KRIS. "They did it the last time too," he said referring to the absorption of an earlier company also named Reliance Petroleum into Reliance Industries in 2002. Reliance Petroleum was listed in May 2006 and has a market value of $7 billion. Stock exchange data showed Reliance Industries held 70.38 percent of Reliance Petroleum at the end of 2008. Billionaire Mukesh Ambani is the chairman of both the Reliance companies. Before the announcement, shares in Reliance Petroleum fell 1.2 percent to 76.20 rupees. The shares have fallen 12.7 percent so far in 2009 after falling 60.9 percent in 2008. Shares in Reliance Industries fell 2 percent to 1,265.05 rupees on Friday. The stock has risen 2.8 percent so far in 2009 after falling 57.3 percent in 2008. Analysts said the move would create an entity with more muscle to raise funds. Reliance could also cancel its stake in the unit after an amalgamation, a move analysts said would boost the combined firm's earnings per share and other key metrics.

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