Demerger

Strategic Financial Management

Reliance Industries Limited

� Reliance Industries Limited (RIL) as India's

largest private sector company on all major

financial parameters with turnover of Rsfinancial parameters with turnover of Rs

73,164 crore (US$ 16.7 billion), cash profit

of Rs 12,087 crore (US$ 2.8 billion), net

profit of Rs 7,572 crore (US$ 1.7 billion) and

net worth of Rs 40,403 crore (US$ 9.2

billion).

Reliance Case

Year 2005

� Details of the Reliance demerger have emerged in a strangesequence.

� That Reliance's financial, telecom and power businesseswould be demerged was first announced at the AGM ofReliance Industries Ltd (RIL).Reliance Industries Ltd (RIL).

� On the same day, Anil Ambani, Chairman of the "newReliance group" ADA Enterprises, announced thedemerger ratios for the individual companies in his group.

� The very next day, RIL distanced itself from these details,telling the stock exchanges that its board had not yetconsidered the ratios.

� And, late in the night that same day (and long after tradinghad closed), the board of RIL announced the demerger ratios,not very different from what Anil Ambani had announced.

Last Date of Consolidated RIL

� Reliance Industries, India's largest private

sector company, having the widest investor

base in the country (over 3.1 million) andbase in the country (over 3.1 million) and

group revenues equivalent to about 2.6 per

cent of India's GDP, traded for the last day

on Jan. 17, 2006 as a consolidated

company.

Demerger Begins

� As per the demerger approved by the RIL board inAugust 2, 2005, the Ambani brothers -- Mukesh andAnil – were expected to head different businesses andfive listed companies have to emerge as potentialinvestment opportunities by March FY 2006.investment opportunities by March FY 2006.

� The Extraordinary General Meeting (EGM), held onOctober 21, 2005 under the chairmanship of Justice(rtd) M L Pendse, approved the demerger scheme withmore than 99 per cent members voting in its favour.

� However, a shareholder - Ahmedabad-basedchartered accountant Kalpesh B Mankad had raisedhis objections in the EGM.

Mankad: A single shareholder as an aggrieved party

� As an intervenor in the High Court, he in an affidavit, claimedthat RIL had not disclosed assets and liabilities, deprivingshareholders of the company of their right to get completeinformation about these issues.

� He had further claimed that the company had also not informedshareholders about its financial position, which amounted toshareholders about its financial position, which amounted tonon-disclosure of material facts.

� Mankad apprehened unfair "asset swapping" if the scheme wasapproved.

� RIL counsel Iqbal Chagla: After the demerger the transferredassets are to be held by new entities to be carved out of RIL.

� "As every RIL shareholder would be holding equal shares innewly-formed companies, there is no scope for any unfairswapping of assets and members would not lose on theirinvestment," he contended.

Judiciary & Demerger in India

� On Dec. 9, 2005, the Bombay High Court Justice Mhatredeclined to grant six weeks stay on the High Court ordersought by Mankad, a shareholder and approved thedemerger of Reliance Industries group companies aimed atsettling dispute between the Ambani brothers, Mukesh andsettling dispute between the Ambani brothers, Mukesh andAnil.

� Over-ruling objections of a minority shareholder, JusticeNishita Mahatre passed the order granting approval to theRIL demerger scheme.

� The Mukesh Ambani-headed RIL had moved the HighCourt on September 12, 2005 to get its approval for thedemerger scheme aimed at the settlement with his youngerbrother Anil.

Approvals and compliances other than HC

� After getting a certified copy of the Bombay HighCourt order dated December 9, 2005 sanctioningthe scheme of arrangement between RIL and the`resulting companies' - Reliance Energy VenturesLtd, Global Fuel Management Services Ltd,Ltd, Global Fuel Management Services Ltd,Reliance Capital Ventures Ltd and RelianceCommunication Ventures Ltd - and theirrespective shareholders and creditors, approvalsought from Registrar of Companies (RoC) andthen RELIANCE Industries Ltd informed stockexchanges on Dec. 21, 2005 that its demergerscheme has become effective on that day.

Demerger and Revaluation by stock market

� Three entities, Reliance Industries,

Reliance Capital and Reliance Energy

were already listed at the exchanges andwere already listed at the exchanges and

they were expected to be re-valued by

analysts in a new demerged business

scenario.

� Two other companies were to be listed by

March 2006.

New Structure

� Mukesh Ambani got complete and independent controlover the oil exploration, refining, petrochemicals andtextiles businesses through a 'core' / standalone RelianceIndustries and the refinery Indian PetrochemicalsCorporation (IPCL. He got the biotech firm Reliance LifeCorporation (IPCL. He got the biotech firm Reliance LifeSciences and Trevira, a European company manufacturingpolyester fibres.

� Anil Ambani got control over power, communications andfinancial services undertakings through four companieswhich come under the umbrella of the Anil DhirubhaiAmbani Enterprise (ADAE) group, as part of theReliance group.

New Structure

� As per plan, these four companies were RelianceCapital Ventures Ltd (to be amalgamated withlisted Reliance Capital), Reliance EnergyVentures (to be amalgamated with RelianceVentures (to be amalgamated with RelianceEnergy), Reliance Communication Ventures(mainly including Reliance Infocomm andReliance Telecom) and Global FuelManagement Services (for gas-based energyundertakings).

August 5, 2005 (In Mumbai)

� The Board of Directors of Reliance Industries Ltd. (RIL)unanimously approved the scheme of Demerger of thebusinesses of the company.

� The Board at its meeting held on June 18, 2005 had resolvedin principle to consider reorganization of the businesses of thein principle to consider reorganization of the businesses of theCompany and authorized the Corporate Governance andStakeholders' Interface Committee of Directors ('CGCommittee') to examine in depth all the relevant issuesincluding statutory and legal requirements for a suitablereorganization of Company's businesses and suggest aproposal to the Board including any Scheme of Demerger.

� On August 2, 2005 the Board approved in-principle theproposal for demerger.

August 5, 2005

� CRISIL, JM Morgan Stanley, Deloitte Haskins and Sells andM/s Amarchand Mangaldas and Suresh A. Shroff & Co wereappointed to advise the CG Committee and the Board.

� The CG Committee along with the Advisors presented aScheme for the approval of the Board of Directors.

principles of fairness protection of� In accordance with the principles of fairness, protection ofminority shareholders' interest, full disclosure and theobjective of unlocking value for all shareholders, the Boardof Directors, after extensive deliberations and discussions,have approved the Scheme of Demerger.

� The Scheme of Demerger as approved by the Board is subjectto such approvals as may be required including that of theStock Exchanges, Mumbai High Court and Shareholders'approvals.

The Appointed Date: September 1, 2005

� The Scheme proposes to demerge assets and

liabilities of the following undertakings of

RILRIL

� Telecommunications Undertaking

� Coal based energy Undertaking

� Financial Services Undertaking

� Gas based energy Undertaking

Reliance Communication

� 1. Reliance Communication Ventures Ltd.

� 1.1. Reliance Communication Ventures Limited for telecommunicationsUndertaking including RIL's investments in Reliance CommunicationsInfrastructure Limited (RCIL), Reliance Infocomm Limited (RIC) andReliance Telecom Limited (RTL).Reliance Telecom Limited (RTL).

� 1.2. Reliance Communications Infrastructure Limited has set up thebackbone infrastructure required by Reliance Infocomm Limited for itstelecom operations.

� 1.3. Reliance Infocomm Limited was set up to provide wireless andwireline telecommunication services based on CDMA technology invarious parts of India.

� 1.4. Reliance Telecom Limited was promoted for providing cellular mobiletelephony services using the GSM technology in East and North-East Indiaand basic telephone services in Gujarat.

RIL held………in Reliance Communications

� 90 crore equity shares of face value of Re.1 each inReliance Communications Infrastructure Limited,

� 319.26 crore equity shares of face value of Re.1each in Reliance Infocomm Limited andeach in Reliance Infocomm Limited and

� 0.71 crore equity shares of face value of Rs.10 eachin Reliance Telecom Limited.

� The value of the investments of RIL in theUndertaking to be demerged into RelianceCommunication Ventures Limited is approximatelyRs. 15,400 crore.

Reliance Energy

� 2. Reliance Energy Ventures Limited

� 2.1. Reliance Energy Ventures Limited for coalbased energy undertaking including RIL'sinvestments in Reliance Energy Limitedinvestments in Reliance Energy Limited

� 2.2. Reliance Energy Limited engaged in thegeneration, transmission and distribution of power.

� 2.3. RIL owned 9.09 crore equity shares of facevalue of Rs.10 each in Reliance Energy Limited.

� 2.4. The value of the investments of RIL in theUndertaking to be demerged into Reliance EnergyVentures Limited is approximately Rs.3,000 crore.

Reliance Capital

� 3. Reliance Capital Ventures Limited

� 3.1. Reliance Capital Ventures Limited forFinancial Services Undertaking includinginsurance.insurance.

� 3.2. Reliance Capital is in the business offinancial services including asset management.

� 3.3. Reliance General Insurance in the businessof general insurance activities.

� 3.4. Reliance Life Insurance is yet to commencebusiness.

RIL held………in Reliance Capital

� RIL currently owned

� 6.01 crore equity shares of face value of Rs.10 each inReliance Capital Limited,

� 2.55 crore equity shares of the face value of Rs.10 each in� 2.55 crore equity shares of the face value of Rs.10 each inReliance General Insurance Co. Limited and

� 0.05 crore equity shares of the face value of Rs.10 each inReliance Life Insurance Company Limited.

� The value of the investments of RIL to be demerged inReliance Capital Ventures Limited is approximately Rs.600crore.

Gas based energy Undertaking

� Global Fuel Management Services Limited

for gas based energy undertaking.

� The book value of RIL investment in this� The book value of RIL investment in this

company was not significant.

Shareholding in Demerged Entities

� All shareholders of RIL, except the SpecifiedShareholders', would be issued shares of de-mergedundertakings in 1:1 ratio i.e., for each share held in RIL,shareholders would get:

One share of Reliance Communications Ventures Ltd. of� One share of Reliance Communications Ventures Ltd. offace value Rs. 5 each fully paid-up

� One share of Reliance Energy Ventures Limited of facevalue Rs. 10 each fully paid-up

� One share of Reliance Capital Ventures Limited of facevalue Rs. 10 each fully paid-up

� One share of Global Fuel Management Services Limited offace value Rs. 5 each fully paid-up

Shareholding in Demerged Entities

� The Specified Shareholders i.e. Trustees of Petroleum Trust(holding 7.5% of RIL) and four companies - RelianceAromatics and Petrochemicals Pvt. Ltd., Reliance Energyand Project Development Pvt. Ltd., Reliance Chemicals Pvt.Ltd. and Reliance Polyolefins Pvt Ltd (collectively holdingLtd. and Reliance Polyolefins Pvt Ltd (collectively holding4.7% of RIL) hold RIL shares for the economic benefit ofRIL shareholders.

� The Specified Shareholders will not take shares of theresulting companies. The RIL shareholders will getproportionate benefit of this also.

� As a result thereof, the total number of shares to be issued byeach of the resulting companies would be 122 crore asagainst 139 crore equity shares of RIL.

Website References

� http://www.rediff.com/money/2006/jan/17spec.htm

� http://www.reliancecommunications.co.in/webapp/

Communications/jsp/media/press_release_detail.jsp

?id=179?id=179

� http://www.iimahd.ernet.in/~jrvarma/blog/index.cgi

/Y2006/reliance_delisting.comments

� http://www.prdomain.com/companies/R/RelianceIn

dustries/newsreleases/20058622477.htm

Newspapers

� “REL, Reliance Cap clarify on demerger”, the Hindu Business Line,August 10, 2005.

� “Reliance Demerger comes into effect”, the Hindu Business Line,December 22, 2005.

� “Reliance demerger catches fund managers, traders on wrong foot”,the Hindu Business Line, Dec. 28, 2005.the Hindu Business Line, Dec. 28, 2005.

� “HC to hear Reliance demerger scheme on Friday, The Times of India,November 24, 2005.

� “Mukesh, Anil, you & me: Will Reliance demerger unlock value? Willother companies take the same route”, The Indian Express, Jan. 19,2006.

� “Reliance unlocks shareholder value”, the Hindu Business Line, Jan.19, 2006.

� “Special trading session for Reliance Industries”, the Hindu, Dec. 31,2005.