INDIA BUSINESS WORLD - APRIL 2006
THE MONTH THAT WAS

CHEVRON PICKS UP 5% STAKE IN RELIANCE PETRO

Hours before the Reliance Petroleum IPO was to hit the market, USA's second largest oil major Chevron Corporation tied up with RPL's parent Reliance Industries. To begin with Chevron India Holdings Pte, Singapore, a wholly-owned subsidiary will pick up a 5% stake in RPL for around $300 million. This marks the first FDI in India's refining sector in the last three decades.

The company will have the right to scale up its equity holding in RPL to up to 29%. If Chevron acquires the additional 24% in RPL on conclusion of the collaboration, its investment in RPL will go up to close to $2 billion. This will then be one of the largest investments from any multinational company in a single project in India. It will also be one of the largest foreign direct investment.

The deal will allow Reliance and Chevron to collaborate on exploration and production projects, marketing and retailing of petroleum products, refining and sourcing of crude. The deal which provides Chevron with a toehold in India's growing refining and marketing market also will give the US energy major a chance to make a foray into the exploration sector.

Sources have it that Chevron and RIL will bid jointly in NELP-VI rounds. Chevron has agreed to partner Reliance in any marketing venture that it takes up in India. The agreements provides for products from the RPL refinery to move into Chevron markets around the world. For Reliance, which is betting on the complexity of the refinery to process cheaper heavier crude for better margins, the partnership will provide access to crude, retail markets and logistic support.

The 5% equity stake has been picked up from RIL's 80% holding in RPL. ET had reported for the first time in its edition dated March 29 that RPL was planning to place a part of its equity with strategic investors. On March 30, we reported that Chevron might pick up a stake.

RPL's IPO, opening on Thursday, has been preceded by a flurry of pre-IPO activity.  In late March, RPL raised Rs 2,700 crore by privately placing 10% of its equity at Rs 60 per share. RIL itself invested Rs 5,400 crore in 20% at Rs 60 per share. Earlier, RIL had bought 60% of RPL's equity at par, thus raising an initial Rs 2,700 crore.

The investment by Chevron, therefore, represents in a sense (since shares are fungible) a Rs 50 per premium on RIL's original investment .