i Develop Stocks Advisory

Reliance may transfer 80% in KG D-6 to four affiliates Reliance Industries (RIL) is planning to transfer 80% of its participatory interest (PI) in the famous D6 block in the Krishna Godavari (KG) basin to four unlisted subsidiaries. Valued at nearly $50 billion with 14 trillion cubic feet of gas reserves, this is the arguably the most valuable asset held by the company. These four entities — Reliance KG Exploration and Development, Reliance KG D6 E&P, Reliance KG Basin and Reliance E&P KG — have recently become majority-owned subsidiaries of RIL. RIL has sought the petroleum ministry’s approval for this. The ministry, in turn, has asked the upstream regulator, the Directorate General of Hydrocarbons (DGH), to furnish a list of similar cases where more than 50% of PI in blocks have been transferred to affiliates. A source familiar with this development told ET: “This is a usual practice in the global oil and gas business. It will provide greater financial flexibility to these subsidiaries for raising funds.” However, Director General of Hydrocarbons VK Sibal declined to comment, saying he has not seen any such request from the company. The RIL spokesperson too declined to comment on the issue. An email sent to Niko Resources, which holds 10% stake in the block, failed to elicit any response. RIL holds 90% participating interest in the block. The exact value or structure of the transaction by which RIL would transfer its stake to the four subsidiaries could not be ascertained. However, it is learnt that RIL will continue to be operator of the block with at least a 10% stake, post the transaction. An analyst with an international research firm said: “The four affiliates will have strong balance-sheets, with a part of the KG basin assets. This will help them bid for global oil and gas assets. It also means that these companies may raise funds, if required, for their overseas bidding without stretching the RIL balance-sheet.” The analyst cautioned that there may be a perception that the interest of RIL shareholders may be affected by transferring this asset to the subsidiaries if it does not hold very large equity in them after the transaction. RIL’s exact shareholding in these four unlisted firms could be not ascertained.