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Reliance Natural Resources Limited (the "Gas Based Energy Resulting Company") was originally incorporated on the March 24, 2000, under the Companies Act, 1956 as Reliance Platforms Communications. Com Private Limited.

The status of the Company changed from private limited to public limited on July 25, 2005.

Reliance Natural Resources Limited (RNRL) is engaged in the business of sourcing, supply and transportation of gas, coal and liquid fuels.

In terms of the Scheme of Arrangement ("Scheme") with Reliance Industries Limited, effective from December 21, 2005 the Company is vested with the Gas Based Energy Undertaking of Reliance Industries Limited as defined in the Scheme.

Reliance Power Limited (R Power) is a part of the Reliance Anil Dhirubhai Ambani Group was established to develop, construct and operate power projects in the domestic and international markets.

Jan -1995 : The Company was originally incorporated as Bawana Power Pvt. Ltd.

Mar ± 2004 : The Company was converted to a public company.

July 4 ± 2007 :Name changed to Reliance Power Limited.

R Power is in the development, construction and operation of power generation projects with a planned capacity of about35,000 MW .

The largest portfolio of private power generation assets under development in India. Projects has diverse in geographic location & fuel source.

On January 15, 2008, the company attracted $27.5 billion of bids on the first day of its initial public offering (IPO), equivalent to 10.5 times the stock on offer, thereby, creating India’s IPO record.

Type of Corporate Restructuring: ‘Merger by Absorption’

Effective Date: October 15, 2010

Appointed Date: April 1, 2010

Board of Directors Approval: July 4,2010

Consideration: The Board of Directors of Reliance Power Limited (“Reliance Power”) and Reliance Natural Resources Limited (“RNRL”) today approved a Scheme of amalgamation of the two companies in an over Rs. 50,000 crore (US$ 11 billion) all stock deal, subject to necessary approvals.

Swap Ratio: Boards approve exchange ratio of 1 share of Reliance Power for every 4 shares of RNRL.

Exchange ratio is based on independent valuation by KPMG.

Reliance Power to have over 6 million shareholders, the world’s largest shareholding family

RNRL shareholders representing approx. 80% of its capital are also shareholders of Reliance Power.

The merger will take the market capitalization of R-Power to over INR 500 bn. Its market cap was INR 419 bn at the close of trading on Friday and that of RNRL was INR 104 bn.

R-Power will retain the assets and people of RNRL. After the merger, the company’s net worth will exceed INR 160bn. The net worth of RNRL is INR 19 bn.

RNRL was formed to supply gas from RIL’s KG basin to the ADAG companies. The company has no power projects of its own, so it has to resell the gas purchased from RIL to R-Power. This comes under gas trading.

Merger of R-Power and RNRL will ensure that RNRL ceases to exist and R-Power gets the gas directly from RIL. The gas supply will be ensured for R-Power as RIL and RNRL had signed a new gas supply agreement to comply with the Supreme Court ruling in May 2010.

The merger was the only way out for ADAG to allocate gas to Reliance Power as the government's gas-utilisation policy does not give priority to a gas-trading company like RNRL but to only actual gas users like power and fertiliser companies. This was again affirmed by the Supreme Court of India in May this year stating that the government has the right and power to set up the price and users for gas. This supposedly left no or little opportunity for RNRL which was set up five years before with the only purpose of procuring gas for Reliance Power

The Reliance ADAG said the merger would accelerate the implementation of Reliance Power's plans for creating more than 8,000 MW of gas-based power generation capacity. The gas would be supplied under the RNRL's Gas Supply Master Agreements with Reliance Industries Ltd (RIL).

Reliance Power would also benefit from the prospects for gas from the RNRL's Coal Bed Methane (CBM) blocks, comprising 45 per cent interest in four blocks with an acreage of 3,251 sq. km. and an estimated resources of 193 billion cubic metres; and a 10 per cent share in an oil and gas block in Mizoram, with an acreage of 3,619 sq. km. and a reserve potential of up to 28 billion cubic metres.

It also envisages reliability and cost efficiency for fuel supplies through the RNRL's coal supply logistics and shipping business; contribution from the RNRL's net worth of Rs.1,900 crore, leading to an increase in Reliance Power's net worth to more than Rs.16,000 crore; and a significant further enhancement of the Reliance Power's overall growth prospects.

The Reliance ADAG also believes that the RNRL's shareholders will benefit from the amalgamation by taking part in future growth prospects of Reliance Power's diversified generation portfolio of 37,000 MW, and its substantial coal reserves in India and abroad.

Method of Accounting: ‘Purchase Method’

A. Reliance power after the issue of shares to the shareholders of rnrl will recognize the difference being excess of assets over liabilities as general reserve instead of capital reserve.

B. If there being a shortfall in assets the difference will be treated as goodwill.

C. If case of differences in accounting policies between rnrl and reliance power, the impact of the same till the appointed date will be quantified and adjusted against general reserve of reliance power.

D. The exploration spvs shall instead of issuing any shares against the block transfer or paying any consideration to reliance power or its shareholders, record the amount equal to the fair value of the exploration undertakings as general reserve.

As regards rnrl is concerned upon the scheme becoming effective the original share capital of rnrl will be cancelled. But, upon the sanction of the scheme but before the appointed date reliance power shall place a deposit of rs.5 lacs which will be converted into equity.

The amount arising on cancellation of issued and paid up share capital shall be credited by rnrl as capital reserve. The goodwill in the books of rnrl shall be adjusted by rnrl against such capital reserve account, Securities Premium account and balance in p/l account in that order to the extent such balances are available.

The reduction of original share capital and securities premium account of rnrl shall be affected as an integral part of the scheme without having followed the process under section 78 read with sections 100 and 103 of the companies act,1956 separately.

Effect on share prices on Reliance Power IMPORTANT DATES

BEFORE ANNOUNCEMENT

AFTER ANNOUNCEMENT

Approval by Board of Directors (July 4,2010)

175.15 189.8

Approval by Bombay High Court (October 15,2010)

160.4 162.9

Effect on share prices on Reliance Natural Resources Limited

IMPORTANT DATES

BEFORE ANNOUNCEMENT

AFTER ANNOUNCEMENT

Approval by Board of Directors (July 4,2010)

63.65 46.30

Approval by Bombay High Court (October 15,2010)

39.50 39.30

The merger ratio is one share of reliance power for 4 shares of RNRL. On current equity (approx. 2.4bn shares) of Reliance power, this would mean 14.3% dilution for Reliance power. At Friday’s close price, the market cap of Reliance power is Rs410bn and RNRL is Rs110bn. Assuming this to be the fair value of both the companies, the mkt cap of combined entity should have been Rs520bn. RNRL shareholders would have owned 14.3% of Rs520bn, which is Rs75bn (~ 30% lower than current mkt cap of RNRL). However, Since RNRL has been valued at Rs75bn in the merger, the mkt cap of RNRL is likely to correct which will reduce the combined mkt cap of the post merger reliance power, meaning further losses.

Also, Looking at the value add to reliance power in the gas deal, only the marketing margins would be saved because of this merger. This would add about Rs3-4/Share to reliance power. We believe, looking at that there are no significant businesses in RNRL; the merger is negative for Reliance power too.

“This deal has left the RNRL shareholders in a very tight situation. It will be a difficult time for the investors of both the firms, as it will take at least three-four years for Reliance Power to get the benefits of gas promised by Reliance Industries (RIL). The shareholders are left with no choice but to stay invested,” Geojit BNP Paribas Financial Services assistant vice president Gaurang Shah said.