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Reliance sees e-economy boost in BSES buy

India's largest private sector firm Reliance Industries Limited expects its new economy initiatives to get a big boost through its proposed acquisition of BSES.

On Friday, Reliance proposed a Rs 6.5-billion ($ 148 million), all-cash deal to hike its stake in BSES by 20 per cent to 35 per cent.

BSES is India's largest private sector power firm in terms of turnover and is a major power distributor in Bombay, one of India's biggest cities.

BSES also has a presence in telecom and Internet services and is setting up an optic fibre network in Bombay along its transmission lines.

The company plans to offer Internet and other broadband services to its captive consumer base. It has 2.2 million customers in Bombay, one of India's biggest markets for such services.

Reliance sees big benefits from BSES buy

Reliance Industries Limited said that its proposed acquisition of electricity company BSES Limited will yield big benefits to both firms.

Petrochemicals maker Reliance, which is India's biggest private firm, announced it would make a public offer to acquire an additional 20 per cent of BSES's shares at a price of Rs 234 a share.

It said in a statement Reliance already was the single largest private sector shareholder in BSES with a holding of 14.82 per cent.

The bid's success will depend on BSES's other main shareholders, the Indian financial institutions, which together hold around 35 per cent in the power generation and distribution firm.

The bid news came after the Bombay markets closed on Friday. Reliance shares ended the day up Rs 5.85 at Rs 315.50, while BSES shares closed down Rs 4.25 at Rs 255.

"The open offer for BSES represents a strategic step in our pursuit of attractive growth opportunities in the power sector," Reliance managing director Anil Ambani said in a media statement.

Reliance said its various power projects under development have a total capacity of over 6,000 megawatts.

"This, together with BSES's existing and future projects of nearly 2,000 megawatts aggregates to a capacity of 8,000 megawatts, making Reliance the largest private sector player in the power sector in India," it said.

Reliance also said it will consolidate accounts under the 'equity accounting' method with that of BSES.

The following benefits would flow to both firms, it said:

• Shared pursuit of the common vision of building adequate power infrastructure in India, and making available uninterrupted quality power to consumers in a cost-efficient manner.
• Creation of new assets in the power sector, to an international scale and magnitude, with enhanced overall competitiveness.
• Pooling of engineering, construction and other projects management strengths, leading to fast track implementation of power sector projects, at the lowest capital costs, and with the shortest gestation periods.
• Access to state-of-the-art technologies for achieving optimal operational efficiencies and the highest levels of productivity.
• Enhanced levels of fuel linkages, contributing to stability of power supply.
• Multi-functional synergies, leading to significant cost reduction.
• Enhanced financial flexibility and the ability to access larger pools of domestic and international capital, at competitive costs.
• Entry into the power trading and derivative markets, leveraging on Reliance's demonstrated financial engineering capabilities and strengths.
• Extended geographical reach, for offering services to a wider base of customers.
• Strategic balancing of business portfolio, and diversification of risk.
• Development of a unique, resident pool of intellectual capital, with diversity of skills, expertise and capabilities, to pursue the growth opportunities of the future, in the power sector.
• Reliance and BSES will also derive substantial value and benefits from the potential for providing convergent broadband applications, in areas such as Bombay and Orissa.
• Reliance's overall endeavour will be to accelerate BSES's growth plans, for implementing its vision, and achieving leadership in the power sector.

A strategic move for Reliance's Internet ventures

"The one very important focus of this whole company which is not so much in focus is the convergence of interest on the whole broadband side," said a Reliance spokesperson.

Reliance Telecom, a group firm of Reliance recently acquired an Internet service provider licence and has a licence to operate cellular services in Orissa, Bihar, Assam and Madhya Pradesh, according to newspaper reports.

Reliance last year formed a joint venture with UK-based WorldTel to create a network of community Internet centres across the southern state of Tamil Nadu in its first phase.

"Power is the main attraction, but advantages on the broadband side are a bonus," the spokesman added.

Analysts expect Reliance to speed up its activities in the Internet arena with the proposed acquisition of BSES.

In the eastern state of Orissa, where Reliance has a licence for running cellular services, BSES has the power distribution licence covering nearly 75 per cent of the state.

BSES a good fit for Reliance, says govt official

Reliance Industries' proposal to acquire a 20 per cent stake in electricity firm BSES would fit well with the group's power sector ambitions, a senior government official in the western state of Maharashtra said on Friday.

"This fits well with Reliance's plans for the power sector. They already have a project at Patalganga in Maharashtra. Since BSES has a presence in generation and distribution, this will give them a good distribution presence," Ashok Basak, chairman of the Maharashtra State Electricity Board, or MSEB, said.

State-run MSEB is the largest generator of power in Maharashtra and controls most of the distribution and the transmission infrastructure in the state.

BSES generates and supplies power to much of Bombay city.

Basak said the acquisition of BSES will also give Reliance a foothold in power distribution in other parts of the country.

"BSES is involved in distribution in Orissa. They have plans for other parts of the country as well," Basak said.

BSES, which is one of India's most profitable private sector power companies, holds the exclusive licence for distribution of power in Bombay and also for more than 75 per cent of area for Orissa.

Reliance last month announced it was setting up a giant 3,960 megawatt thermal power project with Hong Kong's Southern Energy Asia-Pacific Limited, wholly owned subsidiary of Southern Company, in Orissa.

Basak said the proposed open offer for BSES' shares was good for the country's power sector.

"There will be a lot of opportunities in the power sector. This sector requires financially strong players such as Reliance. It is a capital intensive business where returns are slow," he said.

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