The initial impression on reading the news about Mr Mukesh Ambani divesting 4% stake in RPL gives one the impression that the Supremo of the Reliance Group has pulled a fast one over retail investors by selling shares of his own company at a rate higher than the current market price. But are things as transparent as they seem ? is there nothing to be read between the lines ? Is it possible for any intelligent stock market player worth his salt to swallow that Mr Mukesh Ambani, whose net worth as on the 30th of October 2007, less than 3 weeks ago, was reported by no less a source than the Press Trust of India to be 2,49,000/- Crores (2.49 Lakh Crores), making him the richest man ALIVE, is now trying to pull a fast one over his own shareholders just FOUR MONTHS (it is widely expected that RPL will commence production in March 2008) before the commissioning of his RPL Refinery ?? Surely we need to dig a bit deeper to find out the truth for what seems to be the truth is always farthest from it !
For the first part, it is common knowledge that the RPL Refinery work is proceeding at record pace and that the commissioning is due much before time, although the actual commissioning date is a subject of intense discussion and also a closely guarded secret. Many expect that the refinery will commence production as early as March 2008, and, if it does so, should result in the share price of RPL touching Rs 500/- by the date of commissioning.
For the second part, even the most obtuse of intellect will acknowledge that a man whose worth is 2.49 Lakh Crores, stands little, if anything, to gain by divesting 4,000 crores worth of shares, especially if it earns him the wrath and ill will of his investors and his shareholders. The man may succeed in making some money in the short term, but we all know and acknowledge that Mr Mukesh Ambani Lambi Race Ka Ghoda Hai, and that he does not believe in short term gains. Also, the proceeds Rs 4,000/- crores do NOT make any kind of significant impact on his overall wealth I am hopeful that readers will agree with me on this point !
His game is bigger, and his reason for divesting may not be as crass as short term monetary gains. So, what could possibly be the reason for this divestment ???
It is said that the Futures Ban on RPL was having a wider effect on the market than was visible to the eye of the small investor. The Futures Ban on RPL prevented trades in the Nifty Basket, and was said to have a depressing effect on the Indian Stock Market as a Whole and threaten its stability.
Now, why did RPL go into Futures Ban ? Simply because the Open Positions in the Scrip crossed 95% of the Limit. The Market-Wide Limit Position (MWLP) itself is calculated based upon the floating stock in any given scrip. In the case of RPL, 75 % of the equity was held by the Mukesh Dhirubhai Ambani Group whereas 5 % stake was held by Chevron, its foreign partner. Thus the theoretical floating stock in RPL was 20%, less institutional stake (read long term players, who wouldn't sell out before the commissioning of the Refinery).
Anyway, the incidence of large scale futures operations (read shorting) in the RPL Scrip by a Major Operator resulted in RPL Futures exceeding the 95% Limit and hence going into Futures Ban, and threatening, reportedly, the overall stability of the Market. Since most Futures Players long and short seem bent on holding their positions, a deadlock was created. The only way to break this deadlock was to increase the floating stock in the market, thereby increasing the MWLP.
And this, the MDA Group has done by releasing 5% of their personal holding in the open market ! This is what they mean when they say that they have increased liquidity in RPL.
What Say, My Fine Readers ? Is It The Truth Or Just Another Yarn ?
Time will tell watch the price of RPL a small correction is expected (although the chances of a rise are much greater) people who do not understand the underlying basics will sell - but if it closes below 199, you may safely call me a bullshitter, and I will acknowledge myself a bad analyst, and write no more on RPL !!!
Although I am very much invested, and WILL remain invested in it. For I am convinced it will give me double my money on the date of commencement of production.
Zapata
MMB
