Reliance, divesting KG D6 Assets ?

Reliance Industries (RIL) has scrapped its plan to transfer 80% of its participatory interest in the famous D-6 block of the Krishna Godavari basin gas field, perhaps the company’s most valued asset, to four of its subsidiaries. The company had sent a letter to the petroleum ministry on Thursday (August 28) withdrawing its earlier application which sought permission to transfer the stake to the subsidiaries. Under the production sharing contract, any contractor (here RIL) is supposed to get the government’s nod for transferring stake in any asset.

In the letter, RIL says that it has organised funds required for the exploration and production of the block, officially known as KG-DWN-98/3, and therefore wants to abandon its plan to transfer its participatory interest to the subsidiaries.

In its application to the ministry for the proposed transfer three months ago, it had said the move was aimed at increasing flexibility in organising finances for the development of the project. RIL’s investment in the KG basin blocks is expected to be around $8 billion. Interestingly, RIL, had got the go-ahead from the Directorate General of Hydrocarbon on this on August 21. The proposal had then been forwarded to the petroleum ministry.

When contacted, a RIL spokesperson confirmed the development. “RIL has raised the requisite financial resources and is no longer pursuing the application for assignment of participating Interest (PI) to the subsidiaries. Implementation of the project has not been hindered,” the spokesperson said.

“However, in view of non-receipt of such approval/confirmation, we have successfully firmed up alternate means of financing and have met the cash requirements of the project…. We are entitled to assign the PI as envisaged in the…PSC but having raised the requisite finance as aforesaid, there is no need at this time for us to pursue the means of financing that would envisage assignment of PI and for the record hereby formally withdraw the..application and request that no further action need be taken thereon,” RIL said in its letter addressed to the joint secretary (exploration) in the ministry of petroleum. ET has a copy of the latter.

Industry experts said RIL’s move could have been partly driven by the criticism of its big shareholders. A few major shareholders, especially the foreign institutional shareholders, had questioned the logic of the proposed move in the past few days after the development came to the fore on Tuesday.

RIL clarified the next day that these four companies, Reliance KG Exploration and development, Reliance KG D6 E&P, Reliance KG Basin and Reliance E&P KG, are wholly-owned arms. But there were reports saying at least one of these companies could be part-owned by two top-level RIL executives.

The timing of RIL’s withdrawal from the proposed move assumes significance. RIL has withdrawn the transfer of the participatory interest on Thursday (August 28), four days before the hearing of the legal case between the company and Anil Ambani’s Reliance Natural Resources (RNRL) in the Bombay High Court.

Source : ET, INfraline