Birlaa.com

The corporate headlines of this morning was about the likely IPO of Reliance Power Ltd., (RPL) an associate of Reliancy Energy Ltd. (REL). RPL, previously known as Reliance Energy Generation Co. Ltd., is promoted by REL and Reliance Anil Dhirubhai Ambani Group and it is expected that the RPL may divest 30% of its stake for about US $ 3.5 billion, equivalent to Rs.14,000 crores.
This means that RPL is being valued at around Rs.47,000 crores. Does it really have so much value? Presently, equity capital of RPL is 100 crore equity shares, of which 50% is held by REL for value of Rs.100 crores. However, while going through the Balance Sheet of REL, it is found that 49,99,75,000 equity shares of Rs.2 face value of RPL, were allotted during FY 07, to REL while face value of RPL share has been stated at Rs.10 by REL. So, whether the face value of RPL share is Rs.2 or Rs.10, that is not clear. Also, another vexing question is - who holds the remaining 50% of RPL equity?
RPL is presently executing following projects through its wholly owned subsidiaries:-
1) Rosa Power Supply Co. Ltd. is executing a 600 MW coal based power project at Rosa in UP which would be expandable to 1,200 MW in Phase II.
2) Maharashtra Energy Generation Ltd. is setting up a gas based 4,000 MW power project at Shahpur, in Maharashtra, about 85 km. from Mumbai on the Western Coast.
3) 5,600 MW (Phase I) gas based power project at Dhirubhai Ambani Energy City at Dadri in U.P. with the ultimate capacity of 7,480 MW.
4) 4,000 MW Sasan Ultra Mega Power Project at Sasan in M.P.
So in all, 16,680 MW power generating capacities are being installed or created by RPL which would be operational in the next 5 to 7 years. If we presume a capital cost of Rs.4 crore per MW, the capex would be close to Rs.70,000 crores.
Now the questions which need to be examined are :-
1) Whether RPL would be a subsidiary of REL? If yes, to what extent?
2) Whether RPL would be making a fresh issue? It is presumed to be so, then RPL would be able to raise Rs.14,000 crore. Does it mean that 70% stake would be giving any cash flow, which is issued for Rs.200 crore?
3) Will RPL be raising its equity from present 100 crore equity shares, by issuing further equity to REL at the same price as issued to the public, to mobilize the funds to finance its Rs.70,000 crores capex.
4) What will be the financing pattern of all these projects being undertaken by RPL?
5) What will be status of gas supply agreement between RIL and RNRL as RNRL can only supply gas to REL for their power project for the generation of power? Since RPL will not be a wholly owned subsidiary of REL, can RNRL supply arrangement to RPL be tenable?
6) Earlier many of these projects were to be implemented by REL but are now being executed by RPL. Why this transfer?
Does this mean that all these projects were brought into RPL, mainly to enable REL, to mobilize money from the public and in turn improve the market capitalization of REL?
Promoters’ holding in REL is as such is low at around 35%, and any further dilution would have put promoters in a precarious state. So, is RPL IPO a way to have higher stake in all new power projects, in favour of REL and Reliance ADAG Group?
REL had total borrowing of Rs.5,858 crores as at 31-03-07 and had net current assets of Rs.9,837 crores which includes cash and bank balances of Rs.2,176 crores and loans and advances of Rs.8,943 crores (including inter-corporate deposits of Rs.7,740 cores). This means, REL had no surplus funds, on net off debt basis, to execute these mega power projects of Rs.70,000 crores, which are now being executed by RPL.
So by raising money in RPL, the Reliance ADA Group is mobilizing fresh funds of close to Rs.14,000 crores and improving the market capitalization of REL, due to, about 51% stake of RPL to be held by REL.
Does this also mean that Reliance ADAGp would have about 20% stake in RPL and they would also bring in matching contribution to finance these capex plans?
Also, will RPL be a flagship energy company of Reliance ADAG in future and REL would remain a holding company of RPL with power generation of just close to 1,000 MW and power distribution and EPC business, including contracting and realty development.
Unless we do a close scrutiny of the DRHP of RPL, which is likely to be filed very soon with SEBI, it would be difficult to justify the move of RPL to mobilize Rs.14,000 crores from public by diluting just 30% stake.