The shareholders of Reliance Industries Ltd [Get Quote] will benefit immensely, though at the company's cost, since their company's merger with Reliance Petroleum Ltd [Get Quote] will mean non-issue of treasury stock worth Rs 26,000 crore (Rs 260 billion).

The creation of this treasury stock would have given substantial headroom to the company to raise funds in the future.

Under the merger scheme, the company has decided to buy 22.5 crore equity shares of RPL from Chevron at a pre-determined Rs 60 per share, aggregating to Rs 1,350 crore (Rs 13.50 billion). In 2006, Chevron had bought these shares from RIL at the same price. It was 5 per cent of RPL's paid-up capital.

As a result, RIL's holding in RPL will increase to 75.38 per cent, or 3,391.95 million shares, from the current level of 70.38 per cent, or 3,166.95 million shares.

A company spokesperson said, "The company will buy Chevron's stake prior to the merger. As a result, no shares will be issued against those shares."

At the swap ratio of one share of RIL for every 16 shares of RPL, the former would have issued 212 million of its own shares against its holding in RPL. This would have been treasury stock, which would have given it substantial headroom to raise funds at a future date. At the current price of Rs 1,225 per share on the Bombay Stock Exchange, it is worth Rs 26,000 crore (Rs 260 billion).

RIL already has 104.66 million of its own shares with Reliance Petroleum Trust, an entity created in 2002 while merging RIL with its associate company, Reliance Petroleum. Then, in 2006, RIL formed a new company, again under the name of Reliance Petroleum Ltd (the current company), to set up a refinery with an installed yearly capacity of 27 million tonnes.

Since no treasury stock is going to be created, RIL will issue 69.2 million shares to RPL's ordinary shareholders. As a result, RIL's paid-up capital will increase to only Rs 1,643 crore (Rs 16.43 billion) from the present Rs 1,574 crore (Rs 15.74 billion). This, in turn, will enhance the earning per share proportionately for RIL shareholders.