Monday, July 5, 2010

Shell-shocked investors dump RNRL

Anil Ambani
In a mega Rs 50,000-crore deal, Anil Ambani group announced merger of RNRL with Reliance Power.

Traders and investors in Reliance Natural Resources, or RNRL, watched in dismay on Monday as more than a fourth of the company’s market capitalisation was wiped out in what is being seen as a strong response to an unfavourable share-swap ratio with group firm Reliance Power.

The stock crashed 27% to close at Rs 46.40 as investors reacted to Sunday’s announcement that shareholders of RNRL would get one share in Reliance Power, also controlled by billionaire Anil Ambani, for every four shares they hold in the natural gas supplier. Most RNRL shareholders and analysts had counted on a swap ratio of one share of Reliance Power for every three they held in RNRL.

RNRL’s fall on Monday figures high in the list of stocks that have been pummelled the most in a single trading session. Realty firm Unitech is perched on top with its stock having slid 51% in October 2008 followed by Chennai-based pharma company Orchid, which slumped 39%.

Brokers say the stock could be under further pressure in the near term as many traders have heavily short sold the July futures. In short selling, an investor or trader sells a stock he does not own, betting on buying it later when the price slides.

Interestingly, the outstanding positions in RNRL July futures declined 7% while the futures closed at a premium of Rs 0.15 to the spot price. According to market participants, this indicates that many traders had squared off their short positions by purchasing the falling futures. They added these traders would have short sold the futures last week, in anticipation of an unfavourable merger ratio.

'RNRL shareholders stand to gain'

These traders are upset at what they reckon is an attempt by promoters to place their interests ahead of minority shareholders. Promoters control close to 85% in Reliance Power, and about 55% in RNRL.

Reliance Power CEO JP Chalasani told television channels that RNRL shareholders would benefit in the long run because of their exposure to the generation portfolio of R-Power.

At the end of March 31, 2010, there were a little over 25 lakh individual shareholders in RNRL while Reliance Power had close to 35 lakh individual shareholders. In FY10, Reliance Power had a book value of Rs 58.69, and RNRL Rs 11.47. A merger based on book value would have thrown up a swap ratio of 1: 5.

Some market participants say the ratio is not unfair, considering parameters such as book value and business fundamentals.

“If the promoters had strictly gone by book value, RNRL shareholders would have suffered further. Besides RNRL’s existence had been undermined by the recent court (Supreme Court) verdict,” said a BSE broker. What he meant was that after the Supreme Court ruled that the government had the last word in the pricing and distribution of natural gas, RNRL had little reason to exist in its present form. However, veteran brokers on Dalal Street say the merger ratio would have been influenced by minority shareholding in the respective companies.

Source http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/Shell-shocked-investors-dump-RNRL/articleshow/6133048.cms

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