Reliance Industries - Big Brother on the move

protrade

Well-Known Member
#21
Heard rumors few days back on street, few years back reliance has made private placement of 3 crore shares @1200/1300/1400 to some FII, FII is desperate to get out of this dead investment @ purchasing price. Some one dosn't want to see this free float in market, hence price are hammered when it comes close to 1100. See the range for last 8 years.
This is not a rumor - there is some truth to this story - but who ever told you this story doesn't know the full story. But the background to this is something most people don't know, or have forgotten.

In April 2007, Mukesh Ambani and associates purchased warrants on 12 crore shares of Reliance at Rs 1400 per share. And this was an 18 month structure, but Reliance shares were trading lower than the strike price of the warrant. Mukesh Ambani could have easily walked away from the warrant, and not converted into shares, and could have easily purchased the shares from the market at a cheaper price. But if he purchased shares from market, he would have benefitted, but Reliance would not have gotten the money. Because Reliance Industries needed the money, Mukesh Ambani converted the warrants into equity shares at a loss to himself and his associates.

However, because the shares had not traded higher than Rs 1400, under accounting rules, the warrants had not been shown as "potential Dilution" in the period from April 2007 to December 2008. This meant that even though Mukesh Ambani did a favor to Reliance and converted these warrants into Reliance Shares at a loss, Reliance results in the period from April 2007 to December 2008 were deemed to "hide" the potential dilution of equity. And Reliance was fined Rs 13 crore by SEBI for this! This was an obviously idiotic move by SEBI, and yet another example of how Reliance has zero clout with the powers that be!

http://indianexpress.com/article/bu...ies-fined-rs-13-crore-by-sebi-in-shares-case/

This was public news at that point also, but everyone ignored it, because Rs 13 crores is just chump change for Reliance.

Because Mukesh Ambani had converted warrants to shares at a loss, the board of Reliance Industries compensated him with additional 12 crore of Warrants in 2009. These warrants were issued with a strike price of Rs 1100, this time for 10 years.

It is possibly these warrants that are causing price distortions in the market today, because informed investors know that if the price trades higher than Rs 1100, Mukesh Ambani can convert warrants to shares, and sell the shares.

But the reality is that Mukesh Ambani is least bothered about selling the shares! He is more interested in accumulating as many shares as possible at as low a price as possible, because he is confident about the potential of Reliance. If people want to push the stock down and keep it below the warrant conversion price, he has absolutely no issues. Once again, he will happily convert the warrants at a loss, because he knows it wont be a loss in the long term.

This is not some FII or anyone else in the picture - this is Mukesh Ambani himself!
 

DSM

Well-Known Member
#22
Thanks Protrade for all your post. They are well researched, well written, deep and are throw light on many unknown aspects of Reliance's operations and future.... And what you state makes a compelling argument for valuing Reliance not based on its past, but on its future earning and growth potential. And as stated, if Jio and Reliance Retail were to be spun off as independent entities when profitable, it will unlock the the value of Reliance stock as well...

Look forward to more post from you. Thanks a ton.

PS : Agree to most of all what you have posted in this thread - except the part of taking all the skeptics to Mars, and leaving them there. :lol::lol::lol: Skeptics are required in the market, else, without them acting as speed breakers, market will be on a quick one way ride to boom, boom and bust. And bust destroy wealth and takes decades to recover from.


This is not a rumor - there is some truth to this story - but who ever told you this story doesn't know the full story. But the background to this is something most people don't know, or have forgotten.

In April 2007, Mukesh Ambani and associates purchased warrants on 12 crore shares of Reliance at Rs 1400 per share. And this was an 18 month structure, but Reliance shares were trading lower than the strike price of the warrant. Mukesh Ambani could have easily walked away from the warrant, and not converted into shares, and could have easily purchased the shares from the market at a cheaper price. But if he purchased shares from market, he would have benefitted, but Reliance would not have gotten the money. Because Reliance Industries needed the money, Mukesh Ambani converted the warrants into equity shares at a loss to himself and his associates.

However, because the shares had not traded higher than Rs 1400, under accounting rules, the warrants had not been shown as "potential Dilution" in the period from April 2007 to December 2008. This meant that even though Mukesh Ambani did a favor to Reliance and converted these warrants into Reliance Shares at a loss, Reliance results in the period from April 2007 to December 2008 were deemed to "hide" the potential dilution of equity. And Reliance was fined Rs 13 crore by SEBI for this! This was an obviously idiotic move by SEBI, and yet another example of how Reliance has zero clout with the powers that be!

http://indianexpress.com/article/bu...ies-fined-rs-13-crore-by-sebi-in-shares-case/

This was public news at that point also, but everyone ignored it, because Rs 13 crores is just chump change for Reliance.

Because Mukesh Ambani had converted warrants to shares at a loss, the board of Reliance Industries compensated him with additional 12 crore of Warrants in 2009. These warrants were issued with a strike price of Rs 1100, this time for 10 years.

It is possibly these warrants that are causing price distortions in the market today, because informed investors know that if the price trades higher than Rs 1100, Mukesh Ambani can convert warrants to shares, and sell the shares.

But the reality is that Mukesh Ambani is least bothered about selling the shares! He is more interested in accumulating as many shares as possible at as low a price as possible, because he is confident about the potential of Reliance. If people want to push the stock down and keep it below the warrant conversion price, he has absolutely no issues. Once again, he will happily convert the warrants at a loss, because he knows it wont be a loss in the long term.

This is not some FII or anyone else in the picture - this is Mukesh Ambani himself!
 

DSM

Well-Known Member
#23
Lost in the Jio din: Gas worth Rs 11,000 crore (and counting) that RIL took from ONGC's wells - Subir Ghosh

(Subir Ghosh is a journalist and researcher in Bengaluru, and co-author of Gas Wars: Crony Capitalism and the Ambanis.)


http://scroll.in/article/815546/los...e-and-counting-that-ril-took-from-ongcs-wells


The excitement over Thursday’s Reliance Jio launch may sooner or later fade away, but Justice AP Shah Committee’s indictment of Reliance Industries Limited – that it made unfair gains from the Oil and Natural Gas Corporation’s oil fields in the Krishna-Godavari basin – will ensure that the company remains in a spot. The one-member panel of former Delhi High Court chief justice AP Shah on August 31 held RIL and its foreign partners BP Plc and Niko Resources guilty of taking out natural gas that belonged to ONGC in an offshore block in the Bay of Bengal.

This comes a month after the Comptroller and Auditor-General of India pegged “excess cost recovery” from the KG-D6 gas block operated by RIL in the Krishna-Godavari basin at $1,547.85 million or Rs 9,307.22 crore. The Shah Committee’s report is one that RIL did not want the public to see, as is noted unambiguously in its Chapter 5: “RIL said that any recommendations given by the Committee, even if not binding, would be likely to cause irreparable harm to RIL and its reputation since the recommendations would be released in the public. The recommendations would also likely provide the foundation for the Government of India to base its actions on, and guide the determination of civil proceedings.”

So, what’s this report about? The report pertains to a dispute over extraction of natural gas that made news in July 2013, when ONGC wrote to the director-general of hydrocarbons seeking data on an adjoining block that was under RIL. The director-general is the regulatory authority for the management of natural gas in India, and is under administrative control of the ministry of petroleum and natural gas. Just before the April 2014 Lok Sabha elections, the three parties to the dispute – ONGC, RIL and the director-general – agreed to hire an independent consultant to sort out claims and counter-claims regarding interconnectivity of the reservoirs from which they were extracting natural gas. But even as the results were about to be declared, ONGC filed a petition in the Delhi High Court. ONGC alleged that RIL’s wells were “so drilled and constructed that there is a pre-planned and calculated slant/angular incline towards the gas reserves of (the) petitioner with a clear idea to tap the same.” Over all, ONGC accused RIL of drawing natural gas worth Rs 30,000 crore from the former’s wells.

The international consultant agreed upon by all three parties was the US-based DeGolyer & MacNaughton, who filed an interim report in October 2015, and the final report in December that year. The report said that reservoirs in ONGC’s Krishna Godavari basin KG-D5 and the Godavari Producing Mining Lease were indeed connected with KG-D6 block of RIL. It said 11.122 billion cubic metres of ONGC gas had migrated from Godavari-PML and KG-D5 to RIL’s KG-D6. At a price of $4.2 per million British thermal unit, the volume of gas belonging to ONGC that RIL produced was worth $1.7 billion or Rs 11,055 crore.

The government dithered. Two weeks after the above report was submitted, the minister for state for petroleum and natural gas Dharmendra Pradhan appointed Justice AP Shah to examine the report’s findings and recommend action to be taken by the government. What’s so damning about the report The Shah Committee noted that the DeGolyer & MacNaughton report itself had been commissioned under terms agreed upon by all stakeholders in the dispute, especially RIL and ONGC and remarked: “The D&M report itself appears to be reasonable in its research, methodology and conclusions drawn, and is hard to be faulted. In the circumstances, and with the information available at hand, it is difficult for the committee to believe that the manner in which the D&M report was arrived at was questionable.” This apart, Shah observed, “The committee finds that the 2003 Appraisal Report prima facie reveals that RIL had prior knowledge about connectivity and continuity of reservoirs.” This is where he took RIL to task, pointing out that the company did not bring this appraisal report to the notice of the director-general of hydrocarbons. That’s not all. Since the D&M report looked at migration of gas till March 2015, the Shah Committee has recommended that the government should look into migration thereafter as well. It has also criticised the ONGC which too had some prior knowledge about the issue but did not take any action for six years.

The most significant aspect was this: “The committee concludes that the Government of India, and not ONGC, is entitled to claim restitution from RIL for the unjust benefit it received and unfairly retained. ONGC has no locus standi to bring a tortious claim against RIL for trespass/conversion since it does not have any ownership rights or possessory interest in the natural gas.” This is very much in keeping with the May 7, 2010 Supreme Court judgment (in the Mukesh Ambani vs Anil Ambani dispute) which held that natural gas belongs to the people of India, and the government is the custodian. The implications of the committee’s findings and observations are worse – as they will affect the financials of RIL. The CAG had remarked only a month back that in case the ministry accepted the conclusion that RIL did indeed draw gas from ONGC’s contiguous fields, and directs RIL to compensate ONGC for the same, it may affect the financials of KG-D6 since April 2009 when production of gas commenced from the block. Pradhan has sought another breather – a month in which to act on the Shah panel’s report. Reliance was contacted for its comments on the report but did not respond.
 

TradeJoker

Well-Known Member
#24
RCom to migrate CDMA users to Jio`s 4G network. This move part of deal between Ambani brothers; spectrum trading-cum-sharing deal in 16 circles cleared by DoT
 

protrade

Well-Known Member
#25
Lost in the Jio din: Gas worth Rs 11,000 crore (and counting) that RIL took from ONGC's wells - Subir Ghosh

(Subir Ghosh is a journalist and researcher in Bengaluru, and co-author of Gas Wars: Crony Capitalism and the Ambanis.)


http://scroll.in/article/815546/los...e-and-counting-that-ril-took-from-ongcs-wells
The most significant aspect was this: “The committee concludes that the Government of India, and not ONGC, is entitled to claim restitution from RIL for the unjust benefit it received and unfairly retained. ONGC has no locus standi to bring a tortious claim against RIL for trespass/conversion since it does not have any ownership rights or possessory interest in the natural gas.” This is very much in keeping with the May 7, 2010 Supreme Court judgment (in the Mukesh Ambani vs Anil Ambani dispute) which held that natural gas belongs to the people of India, and the government is the custodian. The implications of the committee’s findings and observations are worse – as they will affect the financials of RIL. The CAG had remarked only a month back that in case the ministry accepted the conclusion that RIL did indeed draw gas from ONGC’s contiguous fields, and directs RIL to compensate ONGC for the same, it may affect the financials of KG-D6 since April 2009 when production of gas commenced from the block. Pradhan has sought another breather – a month in which to act on the Shah panel’s report. Reliance was contacted for its comments on the report but did not respond.
The last paragraph says it all - ONGC does not deserve restitution, if at all anyone does, it is the government of India.

The facts of this case are as follows: The blocks allocated to ONGC and Reliance were contiguous. ONGC slept on its blocks for a long time, focussing on other areas. Reliance focussed exclusively on KG-D6. Only after Reliance succeeded in KG-D6, ONGC woke up.

As early as 2005, ONGC realized that these were contiguous blocks, and gas could migrate from their block to ONGC - they did nothing despite getting aware of it.

Years later, they tried to blame Reliance, by showing that Reliance had drilled at the edges of their block - but Reliance was clearly well within its rights to drill anywhere in its acreage.

What is happening is simple physics - when Reliance removes the gas from their area, the pressure drops there, and the gas from other areas migrate there to make the pressure equalize. Moment ONGC starts drilling and does it properly, they will also benefit from the same process. ONGC cannot fault Reliance for their failure to commence drilling.

In any case, it is not Reliance fault that the government allocated contiguous blocks, to two separate parties.

And in any case, the government itself has denied the costs incurred by Reliance to enhance the output, so output from KG-D6 has fallen substantially. Penalizing Reliance for a hypothetical Gas migration where the gas hasn't been extracted doesn't make sense. And counter to all logic, not only has the government got its share of profit petroleum from Reliance for the extracted output, it is also claiming profit petroleum even when nothing was extracted!

Considering all this, I don't think this is a major issue for Reliance. We are seeing a lot of noise on KG-D6 fronts because the arbitration filed by Reliance against the government is reaching advanced stages. The government is likely worried about losing yet another high profile arbitration case!
 

protrade

Well-Known Member
#26
Also, the CAG report has some classic "government style" crap.

In 2014, after Oil prices crashed, the cost of leasing rigs, and other infrastructure crashed quite significantly - in some cases by over 90%. Clearly, you cannot use the rock-bottom prices for periods before they crash. Prices were way higher globally, for all operators before the crash.

Also, a lot of these prices are based on long term contracts. So when prices crash, it is industry practise to adjust these contracts to the new prevailing prices. And in case of serious drops, there are cash payments made by one party to the other, so that the losses made by the other party by renegotiating the contract are offset to some extent. This is nothing new - all classic give and take. The CAG calls such costs as undue payments, done with intention of short-changing the government.

Throughout the industry, Reliance has a reputation of not paying its partners on time, not paying them fully, squeezing them on prices, etc. But if one goes by the government version of the story, Reliance is paying huge sums of money extra to its vendors, and stiffing the government with additional charges!! The entire oil industry cannot help but be amused by the stance of the government!
 

DSM

Well-Known Member
#27
Protrade,

* After your factual and well argued post, this response however by contrast is tepid by logic. The crux of the argument is not about ONGC, but substantial restitution to be made by Reliance in favor or be it X, Y, Z Govt. of India or ONGC, the claimants being immaterial.

* As regards late development of blocks, it is not necessary that ONGC do the drilling when Reliance has done it. Would Reliance seen merit in development of a block just because ONGC had done it? For e.g assume you buy a plot of land as does another relative that is a contiguous plot (meaning nothing other than sharing a common border) If your relative was to develop the plot and build a house, it is not necessary for you to do so... ONGC is not obliged to match Reliance's actions. And to further extend the analogy, if your relative had to drill an angular well or tap into water stream in your plot using horizontal drilling, would that in any way be right or legal? Though simplistic, the same argument holds here.

* The independent, international and expert panel, DeGolyer & MacNaughton appointed with agreement of Reliance, has stated that 11,055 crore of gas belonging to ONGC had migrated to Reliance. So ONGC's petition does have merit.

* And in another argument while you say that it is simple physics, it is not necessarily so. ONGC has claimed that :RIL’s wells were “so drilled and constructed that there is a pre-planned and calculated slant/angular incline towards the gas reserves of RIL"

* Again, Govt. denying the costs incurred by Reliance (Gold plating and padding of expenses incurred in drilling) is apt and it is not penal in nature as it pertains to wrongful tapping of ONGC's reserves. If govt. were to reimburse RIL, it would be equivalent to reimbursing the fuel bill of the person who has carted away your material stored in your property. :lol::lol::lol:

* Re. 'I don't think this is a major issue for Reliance' Really? Guess you did not read the post fully. This is what Reliance have themselves said : “RIL said that any recommendations given by the Committee, even if not binding, would likely cause irreparable harm to RIL and its reputation since the recommendations would be released in the public"

Last from me on this....

The last paragraph says it all - ONGC does not deserve restitution, if at all anyone does, it is the government of India.

The facts of this case are as follows: The blocks allocated to ONGC and Reliance were contiguous. ONGC slept on its blocks for a long time, focussing on other areas. Reliance focussed exclusively on KG-D6. Only after Reliance succeeded in KG-D6, ONGC woke up.

As early as 2005, ONGC realized that these were contiguous blocks, and gas could migrate from their block to ONGC - they did nothing despite getting aware of it.

Years later, they tried to blame Reliance, by showing that Reliance had drilled at the edges of their block - but Reliance was clearly well within its rights to drill anywhere in its acreage.

What is happening is simple physics - when Reliance removes the gas from their area, the pressure drops there, and the gas from other areas migrate there to make the pressure equalize. Moment ONGC starts drilling and does it properly, they will also benefit from the same process. ONGC cannot fault Reliance for their failure to commence drilling.

In any case, it is not Reliance fault that the government allocated contiguous blocks, to two separate parties.

And in any case, the government itself has denied the costs incurred by Reliance to enhance the output, so output from KG-D6 has fallen substantially. Penalizing Reliance for a hypothetical Gas migration where the gas hasn't been extracted doesn't make sense. And counter to all logic, not only has the government got its share of profit petroleum from Reliance for the extracted output, it is also claiming profit petroleum even when nothing was extracted!

Considering all this, I don't think this is a major issue for Reliance. We are seeing a lot of noise on KG-D6 fronts because the arbitration filed by Reliance against the government is reaching advanced stages. The government is likely worried about losing yet another high profile arbitration case!
 

protrade

Well-Known Member
#28
Protrade,

* After your factual and well argued post, this response however by contrast is tepid by logic. The crux of the argument is not about ONGC, but substantial restitution to be made by Reliance in favor or be it X, Y, Z Govt. of India or ONGC, the claimants being immaterial.

* As regards late development of blocks, it is not necessary that ONGC do the drilling when Reliance has done it. Would Reliance seen merit in development of a block just because ONGC had done it? For e.g assume you buy a plot of land as does another relative that is a contiguous plot (meaning nothing other than sharing a common border) If your relative was to develop the plot and build a house, it is not necessary for you to do so... ONGC is not obliged to match Reliance's actions. And to further extend the analogy, if your relative had to drill an angular well or tap into water stream in your plot using horizontal drilling, would that in any way be right or legal? Though simplistic, the same argument holds here.

* The independent, international and expert panel, DeGolyer & MacNaughton appointed with agreement of Reliance, has stated that 11,055 crore of gas belonging to ONGC had migrated to Reliance. So ONGC's petition does have merit.

* And in another argument while you say that it is simple physics, it is not necessarily so. ONGC has claimed that :RIL’s wells were “so drilled and constructed that there is a pre-planned and calculated slant/angular incline towards the gas reserves of RIL"

* Again, Govt. denying the costs incurred by Reliance (Gold plating and padding of expenses incurred in drilling) is apt and it is not penal in nature as it pertains to wrongful tapping of ONGC's reserves. If govt. were to reimburse RIL, it would be equivalent to reimbursing the fuel bill of the person who has carted away your material stored in your property. :lol::lol::lol:

* Re. 'I don't think this is a major issue for Reliance' Really? Guess you did not read the post fully. This is what Reliance have themselves said : “RIL said that any recommendations given by the Committee, even if not binding, would likely cause irreparable harm to RIL and its reputation since the recommendations would be released in the public"

Last from me on this....
DSM - while ONGC claims Reliance dug wells close to the border with ONGC, and in an angular way, neither the DeGolyer & MacNaughton report, nor the Shah Commission report mention anything like this. So, maybe we can agree that this particular stance of ONGC doesn't have merit?

Your point about ONGC not being *obliged* to drill just because Reliance started drilling, might be correct - but the obligation is not just with reference to Reliance. As per the NELP itself, ONGC was obliged to drill, and not simply sit on their acreage. They did not want to commit huge capex, so they ignored their own obligations, and waited till the Reliance drilling found huge amounts of gas and oil.

And clearly, ONGC claims have been thrown out - because the gas does not belong to ONGC. It belongs to the people of India.

There is another factor because of which the entire claim - whether by ONGC or by the government of India simply doesn't matter. And that's why I said it is inconsequential to Reliance.

The way NELP is structured, Reliance has to first recover its costs, and only after recovering its costs would it be obliged to pay the government's profit petroleum share. If this Rs 11,000 crores of gas extracted by Reliance actually belongs to the government of India, then effectively Reliance would not have made any profit out of KG-D6 - so they don't owe the government ANY profit petroleum. All the profit petroleum taken by the government so far would have to be returned back to Reliance - which means this entire cost is not going to hit Reliance however you see it.

In fact, by some metrics, the government would be shooting itself in the foot by taking all its Profit Petroleum share in "advance", when prices were much lower! Today's gas prices for "difficult" fields are double of what they were earlier - moment the arbitration case is resolved, Reliance gets the benefit of the higher prices.

Even if this entire Rs 11,000 crore costs hit Reliance - even as per the CAG report, the Gold plating is only to the extent of $1.6 Billion. Whereas Reliance total bill for the same is over $2.8 Billion. So Reliance still stands to receive $1.2 Billion from the government, even as per the government's own story. So the worst case for Reliance is to get $1.2 Billion from the government - which isnt factored in by analysts. However, if the arbitration goes against the Government, Reliance could receive significantly more than $1.2 Billion!

Analysts are not seeing this picture properly - the same way they completely misread the Tata Motors picture.

In absolute worst case - even if Reliance gets hit with Rs 11,000 crores, and loses the arbitration case, and doesnt even get the $1.2 Billion from the government that the CAG report itself implies Reliance should get - it is a Rs 11,000 crore hit - which will be absorbed by the company with 4 months of operations. Not the end of the world. If you factor in tax benefits from the loss, etc, it should just be 3 months profits.
 
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DSM

Well-Known Member
#29
Protrade,

You Sir, seem to know much more about the matter and in more detail than I do. I accept that.... :):):) So I cannot comment much on the report as I have not read it, but it seems that you possibly have. So I accept that what you state is correct, while I stand corrected. :lol:

Regards....

DSM - while ONGC claims Reliance dug wells close to the border with ONGC, and in an angular way, neither the DeGolyer & MacNaughton report, nor the Shah Commission report mention anything like this. So, maybe we can agree that this particular stance of ONGC doesn't have merit?

Your point about ONGC not being *obliged* to drill just because Reliance started drilling, might be correct - but the obligation is not just with reference to Reliance. As per the NELP itself, ONGC was obliged to drill, and not simply sit on their acreage. They did not want to commit huge capex, so they ignored their own obligations, and waited till the Reliance drilling found huge amounts of gas and oil.

And clearly, ONGC claims have been thrown out - because the gas does not belong to ONGC. It belongs to the people of India.

There is another factor because of which the entire claim - whether by ONGC or by the government of India simply doesn't matter. And that's why I said it is inconsequential to Reliance.

The way NELP is structured, Reliance has to first recover its costs, and only after recovering its costs would it be obliged to pay the government's profit petroleum share. If this Rs 11,000 crores of gas extracted by Reliance actually belongs to the government of India, then effectively Reliance would not have made any profit out of KG-D6 - so they don't owe the government ANY profit petroleum. All the profit petroleum taken by the government so far would have to be returned back to Reliance - which means this entire cost is not going to hit Reliance however you see it.

In fact, by some metrics, the government would be shooting itself in the foot by taking all its Profit Petroleum share in "advance", when prices were much lower! Today's gas prices for "difficult" fields are double of what they were earlier - moment the arbitration case is resolved, Reliance gets the benefit of the higher prices.
 

protrade

Well-Known Member
#30
Protrade,

You Sir, seem to know much more about the matter and in more detail than I do. I accept that.... :):):) So I cannot comment much on the report as I have not read it, but it seems that you possibly have. So I accept that what you state is correct, while I stand corrected. :lol:

Regards....
I haven't read the reports - but I know if ONGC's claims were validated, they would have been mentioned upfront in all the articles. The one fact that is clearly mentioned is that ONGC's claim for restitution itself has been denied - and its clearly stated that if anyone has a claim, it is the Government of India.

The first report also only mentions "Gas Migrated" - not one article refers to any ulterior actions of Reliance that may have caused the gas to migrate - at least from what I have seen.
 

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