India's Reliance Industries and Reliance Petroleum

India's private oil and petrochemicals giant Reliance Industries Limited
is set to fold its 70.38%-owned refining subsidiary Reliance Petroleum Limited
into itself, after buying back US major Chevron's 5% stake in the latter.

     The biggest merger so far in India's corporate history received the
go-ahead from the boards of RIL and RPL on Monday and will be take effect
retroactively from April 1, 2008. RIL Chairman and Managing Director Mukesh
Ambani described the decision as "a significant step in our goal to be among
the largest global corporations."

     RIL, which is engaged in oil and gas exploration, refining and
petrochemicals production, is India's largest private sector company. It ranks
103rd among the world's top 200 companies in terms of profits.

     RPL was spun off from RIL in early 2006. It is currently in the final
stages of commissioning a 580,000 b/d high-complexity refinery in a Special
Economic Zone of Jamnagar in the western state of Gujarat, set up at an
estimated cost of Rupees 262.17 billion ($5.07 billion).

     RIL sold a 5% stake in RPL to Chevron in April 2006 for $300 million and
placed 900 million shares, representing 20% of RPL's equity, with
institutional and retail investors through an initial public offering at
Rupees 60/share.

     In November 2007, RIL sold another 4.01% stake in RPL--whose shares were
trading above Rupees 200 at the time--to the public for $1 billion.

     RIL will buy back Chevron's 225 million shares in RPL at its selling
price of Rupees 60/share, a company spokesman said Monday. An analyst at
Moody's ratings agency pegged the payout to Chevron at Rupees 13.5 billion.

     Under its stake purchase deal, Chevron had an option to raise its
interest in RPL to 29%, "but that was conditional on [the signing of] certain
agreements for crude supply and products offtake [between the two companies]
which did not happen," the RIL spokesman said.

     However, "there is no difference in our commercial relationship," he
said, adding that Chevron would continue procuring crude and selling products
for the RPL refinery.
    
     1:16 SHARE SWAP

     The merger will see RPL shareholders receiving one RIL share for every 16
RPL shares they own, RIL said in a statement Monday.

     RIL shares had slipped to around Rupees 1,225.15/share on the Bombay
Stock Exchange at 1020 GMT Monday, down 3.15% from Friday's close. RPL stock
was trading at Rupees 75.15/share, down roughly 1.4% from Friday.

     RIL said it would issue 69.2 million new shares to the existing
shareholders of RPL, thereby increasing its equity capital to Rupees 16.43
billion. As a result, the shareholding of the promoters in RIL will go down to
47% from 49%, the company said.

     RIL operates a 660,000 b/d refinery at Jamnagar, which came on stream in
1999 and exports more than half its products output.

     The union will "reduce the earnings volatility for RPL shareholders and
allow them to participate in the full energy value chain of RIL," the company
said.

     At the same time, the merger would be earnings-per-share-accretive for
RIL, the company said.

     "Through this merger, RIL consolidates a world-class, complex refinery
with minimal residual project risk, while complementing RIL's product range,"
it said.

     "There will be further gains from reduced operating costs arising from
synergies of a combined operation," RIL added.

     The amalgamation will not affect the overseas trading offices set up by
the group through 2008.

     There will be no changes to the London trading team, and the setting up
of a trading desk in Houston is still on track, the spokesman said. RIL might
set up a new trading unit in Singapore following the en bloc resignation of
the earlier team in February, but has not yet decided on the time frame, he
added.
    
     STATE-OF-THE-ART REFINERY NEARLY COMMISSIONED

     RPL completed construction of its refinery late last year and began
commissioning it on December 25. The plant loaded its first product export
cargo in January.

     The new refinery has a Nelson complexity index of 14 and is capable of
processing heavy crudes to produce fuel beyond the forthcoming Euro 4 emission
norms.

     With the merger, RIL said it would rank among world's top 10 refining
companies with a total crude processing capacity of 1.24 million b/d, and will
be the largest producer of ultra clean fuels at a single location. It will be
the fifth-largest producer of polypropylene.

     The merger would have "no immediate impact" on RIL's corporate credit
rating of BBB-, ratings agency Standard & Poor's said Monday.

     "We expect the proposed merger to further enhance RIL's global scale of
integrated production facilities and strong competitive position in
petrochemicals and oil refining. However, the company continues to remain
exposed to higher debt levels, pressure on profitability due to downturn in
commodities and oil refining, and uncertainties on the size of cash flow from
upstream gas operations," said S&P, which, like Platts, is a division of The
McGraw-Hill Companies.

     Ratings agency Moody's Monday affirmed its Baa2 issuer and senior
unsecured ratings on RIL, saying the rating outlook was "stable."

     "The rating affirmation reflects the neutral impact of the transaction on
the consolidated financial profile of the group, as the consideration will be
paid primarily through issuance of shares," said Ivan Palacios, Moody's lead
analyst for RIL.

     The merger would simplify the group's corporate structure, giving RIL
access to the additional 30% of cash flow generation from RPL that it does not
currently have "for a small cash consideration," Palacios added.

     "At around $270 million, the cash outflow required to buy back Chevron's
5% stake is relatively small as compared to the company's cash balance of
about $5.9 billion as of December 2008," Palacios said.