Gas supply ruling hits Reliance Industries shares

MUMBAI Mon Jun 15, 2009 9:16pm IST

Reliance Industries KG-D6's floating production storage and offloading (FPSO) vessel is seen off the Bay of Bengal in this undated handout photo. REUTERS/Reliance Industries/Handout

Reliance Industries KG-D6's floating production storage and offloading (FPSO) vessel is seen off the Bay of Bengal in this undated handout photo.

Credit: Reuters/Reliance Industries/Handout

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MUMBAI (Reuters) - Reliance Industries has been told by a court to supply gas to Reliance Natural Resources at nearly half the price of an interim ruling, sending the company's shares down 7.5 percent.

A lawyer for Reliance Natural said on Monday the Bombay High Court had asked Reliance Industries to supply 28 million metric cubic metres a day (mmscmd) for 17 years at $2.34 per million metric British thermal unit (mmBtu) to Reliance Natural.

Reliance Industries, controlled by billionaire Mukesh Ambani, and Reliance Natural, headed by estranged younger brother Anil, have been contesting details in a supply contract agreed when the Reliance empire split in 2005.

On Jan. 30, a court issued an interim order saying Reliance Industries could sell gas at a government-approved price of $4.2 per mmBtu from its KG-D6 block in the Krishna Godavari basin, off eastern India.

"Within one month's time we have to enter into an agreement," Reliance Natural lawyer Mahesh Jethmalani told reporters on Monday.

A Reliance Industries spokesman said the company would not comment until it had studied the judgment.

Prayesh Jain, an analyst with India Infoline, said the ruling would have a negative impact of around 120 rupees per share for Reliance Industries. "With this information, sentiment has become weak for Reliance (Industries) right now."

Reliance Industries shares fell 7.5 percent to 2,180.45 rupess, its biggest single-day decline in more than five months and valuing India's biggest listed conglomerate at $71 billion.

Shares in Reliance Natural, engaged in sourcing, supply and transportation of gas, coal and liquid fuels, jumped 24 percent to 108.35 rupees, its highest close in more than a year. It was the top traded stock with a volume of over 105 million shares.

MOU KEY

Mukesh and Anil signed a deal based on a memorandum of understanding agreed between the two in 2005 when the energy group was split between the two, another lawyer for Reliance Natural said.

"The judgment is entirely in our favour. The MoU is an integral part. It has to be relied upon," D.J. Kakalia said.

While the ruling is negative for Reliance Industries, it can appeal against the verdict in India's Supreme Court.

The company's revenue in the fiscal year to March 2010 had been expected to rise 16 percent to 1,817 billion rupees ($38.1 billion), while net profit before exceptional items should grow 37 percent to 210 billion, according to Reuters Estimates.

In June 2005, the Ambani family reached a deal to split the Reliance group after a feud between Mukesh and Anil became public in November 2004. The deal was brokered by their mother Kokilaben and the formal split took place in 2006.

Monday's judgement arrived two months after Reliance Industries started pumping natural gas from its massive deep-sea field, which at full throttle will nearly double India's gas output.

Reliance Industries has a 90 percent interest in the block, while Canada's Niko Resources holds the rest.

($1 = 47.7 rupees)

(For Quotes and Interactive Charts of Reliance Industries click here)

(For Quotes and Interactive Charts of Reliance Natural Resources click here)

(For more news on Reuters Money click in.reuters.com/money)

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