Reliance RPL Deal - what's cooking ?

On Friday, Reliance Industries (RIL) undertook the biggest stock market operation by an Indian company when it offloaded a 4.01% stake in its 75% subsidiary Reliance Petroleum (RPL) for Rs 4,203 crore.

An RIL spokesman said the sale would reduce volatility in the stock and further broadbase shareholding in RPL.

But when one of the major index drivers sees its promoter, an insider, quietly offloading shares on unwary investors, it’s time to think whether the share price has become over-valued.

Analysts said that RPL will find a higher representation in the BSE Sensex, which represents the floating stock of 30 leading companies.

Mutual funds could now buy more of RPL, in view of the higher representation.

With promoters selling, the floating stock (owned by non-promoters) in RPL increased by 4.01% to 24%. Chevron owns 5%. The number of RPL shareholders since IPO has increased from 12 lakh to 16 lakh.

However, the modus operandi of the sale is still not known.

Whether RPL shares were sold in small lots or in huge block deals to small investors or private equity firms is still a matter of conjecture.

These details were neither available in the block or bulk trade details of BSE and NSE, nor was it put on the stock exchange notice board till Saturday night.

The details were neither available in the block or bulk trades of BSE and NSE nor was it put on the stock exchange notice board till Saturday night.

Since the two exchanges are closed on Saturdays and Sundays, the the company will be able to keep the secret till Monday.

Sebi rules say that any person holding 5% shares or voting rights in a listed company shall disclose to the company in Form C, if such change exceeds 2% of the total shareholding.

The disclosure, according to the rules, shall be made in four working days and the listed company should, within five days from the receipt, disclose to all exchanges. The companies in question have the same management at the helm.

Legally, they may still be on the right side as Sebi’s insider trading norms give enough time for an insider to sell, but morally the ‘blind faith’ many investors have reposed on Reliance for decades may get tested after the event.

RPL shares hit a high of Rs 295 on November 1. The counter surrendered value and moved downhill ever since, when curbs on fresh positions in futures & options were instituted by the regulators. The market-wide limit of 95% had breached in the RPL counter.

Earlier this month, the RPL share was on the rise on a market rumour that Chevron could pay $6 billion for 21% in RPL.

The US oil major promptly repudiated the news, but the Indian company was slack in denying it. RPL shares climbed northwards probably on this rumour, to a 52-week high of Rs 295. Suddenly thereafter, sellers emerged. Who were the sellers in the F&O segment? Did they know something that others didn’t? For instance, that at least for now, Chevron was not planning to buy shares.

Market observers were amazed by the way Reliance Petroleum, a refinery which is still under construction and to be ready by only next fiscal, has overtaken the combined shareholder wealth of the three PSU refiners-cum-marketers - IOC, HPCL and BPCL. These are exuberant times, one may say.

Reliance Natural Resources controlled by Anil Ambani is also commanding huge values.

That’s not all. A company slated for delisting, Essar Oil, suddenly decided against it and wants to enjoy the maddening roller-coaster ride in the stock markets.

Has the tide in the markets changed? Or, are some insiders in the know booking profits and holding cash as they know for sure that share prices have become too ripe? Or is this a one-off operation in stock market?

What might embitter small investors is that the entire transaction was done under cover. The promoter sold the shares on unwary investors who apparently had no clue that last week it was the main promoter, RIL that was selling RPL shares.

If Sebi is curious, it may well want to see the short sale positions in RPL counter. To be fair to RIL, what with its legal eagles guiding them, it may well be on the right side legally. On corporate governance issues and the moral angle, it may well be another matter.

Via DNA