Study of Reliance Industries Limited demerger

Abstract

Introduction Reliance Group, founded by Dhirubhai H. Ambani, is India's largest business house with total revenues of over Rs.100,000 crore in 2004-05. It contributed approximately 3.5% of India’s GDP. In 2004-05, the activities of Reliance Group spanned exploration and production (E&P) of oil and gas, refining & marketing, petrochemicals, textiles, financial services and insurance, power and telecom initiatives. As each of these businesses has different operational and financial risk, demerging was thought to be the best option to enhance value for the shareholders and allow a focused strategy in operations. Also, the irreconcilable differences between Mr. Mukesh and Anil Ambani regarding the promoters’ stake in Reliance Group, only hastened the process of demerger. The Reliance Demerger special trading session conducted on January 18, 2006 was unprecedented in the Indian Capital Markets history with record trading done in RIL stock on the appointed day. The traded amount on RIL counter touched Rs. 4300 cr. during the day. The average trading volume octupled to 1.96 crore from 25 lakh on an average day. The demerger of RIL has unlocked unprecedented value for more than 23 lakh Reliance shareholders. The process led to the addition of approx. Rs.100 to each predemerger share of RIL. RIL’s stand-alone post demerger market capitalization was 15 per cent higher than its pre-demerger market cap, and 23 lakh shareholders further benefited from shares in the four ADAE group companies - Reliance Communications Ventures Ltd., Reliance Energy Ventures Ltd., Reliance Natural Resources Ltd. and Reliance Capital Ventures Ltd.