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Reliance builds gains on stake sale news

Shares of India's largest petrochemicals firm Reliance Industries Ltd added to morning gains triggered by the announcement late Tuesday that it planned to sell a stake in group company Reliance Petroleum.

Analysts said the move would result in unlocking of shareholder value and improved cash flows for Reliance Industries, the parent company of one of India's largest and fast-growing conglomerates.

Reliance Industries said on Tuesday after the market closed that it and other group companies plan to sell up to a 13 per cent stake in Reliance Petroleum Ltd, partly to raise cash for its ambitious drive into telecommunications.

Reliance Industries' shares rose as much as 2.9 per cent to a high of Rs 385. At 1:30 p.m., the shares were trading at Rs 384.50, up 2.81 per cent on the day.

The shares of Reliance Petroleum, the nation's largest private sector oil refiner, rose as much as 2.9 per cent to a high of Rs 51.70. At 1:30 p.m. they were trading at Rs 51.50, up 2.49 per cent on the day. The benchmark Bombay Stock Exchange Sensex was up 0.98 per cent at that point.

"The move is a real trigger for Reliance as the inflow from the sale will do away with the need to take additional debt for the group's other projects," said Jigar Shah, head of research at K R Choksey Securities.

It will also result in unlocking of shareholder value, Shah said.

Karthik Ramakrishnan, analyst with Sunidhi Consultancy Services, said: "Reliance's cash flows will improve as the firm had said earlier it expected somewhere between $750 million and $1.0 billion for a 10 per cent stake sale in Reliance Petroleum."

Ramakrishnan said Reliance would use the sale proceeds to fund its telecom initiative which has a capex cost of Rs 150 billion.

Reliance Industries owns 45 per cent of Reliance Infocom, the firm spreading the group's telecom initiative by laying broadband fibre optic network linking 115 cities and towns throughout India.

Reliance and its affiliates own 64 per cent of Reliance Petroleum, which operates a 540,000 barrel per day refinery in Gujarat.

Ramakrishnan said the firm had initially invested $1.2 billion in Reliance Petroleum and could recover a substantial part of that investment by selling a 10 per cent stake.

The divestment will be through an international offering in one or more tranches, Reliance said in a statement on Tuesday.

Ramakrishnan said the stake sale move in Reliance Petroleum would be beneficial should a strategic partner pick up a part of the stake.

"Reliance Petroleum can then enter into long-term crude arrangements with such a partner," Ramakrishnan said.

An analyst who spoke on the condition of anonymity added he saw the Reliance share price headed towards the March 2 intra-day peak of Rs 451.80 in the near term.

But a dealer with an institutional brokerage added his clients had taken advantage of the spurt and booked some sales on the Reliance stock.

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