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Reliance to use closed fuel outlets for malls and multiplexes

Reliance to use closed fuel outlets for malls and multiplexes

Author | Source: Business Standard | Monday, May 12,2008 8:29 AM

Reliance to use closed fuel outlets for malls and multiplexes

Reliance Industries Ltd (RIL), India's biggest firm by market capitalisation, is drawing up plans to convert its fuel retail outlets, which were recently closed owing to unviable operations, into malls and multiplexes.

Earmarking about Rs 5,000 crore for the project, the company is planning to develop 700 to 800 properties at important locations. The company, which is promoted by Mukesh Ambani, has also approached its fuel dealers with offers to buy out the properties they own, said sources familiar with the developments.

"About 500 properties used for the fuel retail business are owned by the Mukesh Ambani group. The remaining outlets are dealer-owned and dealer-operated. The dealers, who were incurring losses due to suspension of the retail business, have approached the company to sell their properties," company sources said.

The company is believed to be offering Rs 2 crore to Rs 4 crore for the properties and petrol pumps owned by the dealers. An additional Rs 4 crore to Rs 6 crore will be spent to construct each mall and multiplex structure.

Reliance Industrial Infrastructure, a group company that was floated for in-house infrastructure construction, will be the developer of the properties.

Sources said all the Reliance Retail brands — Reliance Fresh, Reliance Footprint, Reliance Time Out, Reliance Digital, Reliance Wellness and Reliance Jewel — will find space in these malls.

For the multiplexes, the company is exploring the option of joint ventures with the founder of Adlabs Films Manmohan Shetty, Yash Raj Films and a few foreign media houses.

The company recently closed 1,432 petrol pumps after it incurred a Rs 800-crore loss in its petroleum retail business in 2007-08 on account of a growing gap between low, government-mandated prices of petrol and diesel and rising crude oil prices.

Declining to comment on the future strategy, an RIL spokesperson said, "We are being forced to suspend retail operations because of the lack of a level playing field."

The spokesman was referring to a subsidy paid to government-owned oil marketing companies, which dominate the business, to sell petroleum products below cost. RIL and other private fuel retail suppliers like Essar and Shell are not entitled to this compensation, which is paid through bond subscriptions, making their businesses unviable.

"Since the government cannot increase the fuel price of state-run companies for political reasons, RIL's suspension of fuel retail business will be akin to ending it altogether. So the company has to find another business tapping the existing land bank," said a Mumbai-based analyst.

The company recently struck a deal with Marks & Spencer (M&S) for which it might use these properties to fulfil its commitments to the iconic UK retailer. M&S plans to open at least 50 stores in India and become a leading brand in the country's $300 billion retail sector.

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