UPDATE 2-India's Reliance Natural plunges after share swap deal
* Share swap deal values RNRL at $1.5 bln, at discount
* RNRL falls as much as 28.5 pct, lowest level since May 21
* Reliance Power gains as much as 8.4 pct, highest in a year (Adds details, JPMorgan comment; updates share price)
MUMBAI, July 5 (Reuters) - India's Reliance Natural (RENR.BO) shed more than a quarter of its value on Monday, after a deal to fold into sister firm Reliance Power (RPOL.BO) valued the company at $1.5 billion, or 31 percent below its Friday closing price.
The companies, both controlled by Indian billionaire Anil Ambani, said on Sunday Reliance Natural Resources (RNRL) shareholders would receive one Reliance Power share for every four they hold. [ID:nSGE663015]
Reliance Natural lost a May ruling by India's highest court in a gas supply dispute with Reliance Industries (RELI.BO), controlled by Anil's elder brother, Mukesh Ambani, the world's fourth-richest man.
Analysts say there was no reason for Reliance Natural to exist independently following the court's verdict as it would not receive gas at a cheaper rate than the government-approved price.
"The merger was a given, it was just a matter of time," said Sonam Udasi, head of research at IDBI Capital.
"RNRL was just a shell company, and after the court verdict, it couldn't have sold gas at a lower price, so it had to be absorbed," he said.
Based on Friday's closing price of Reliance Power and the number of outstanding shares of Reliance Natural, the deal values Reliance Natural at about $1.5 billion, or about 43.80 rupees a share, compared with its closing price of 63.65 rupees on Friday, according to Reuters calculations.
By 0609 GMT, shares in Reliance Natural were down 27.3 percent at 46.25 rupees, after falling to 45.50, their lowest since May 21. Reliance Power was up 2.5 percent at 179.60 rupees, after climbing to 189.80, its highest in more than a year.
About 5.6 million shares were traded in Reliance Power, more than double the stock's average trading volume over the past 30 days. About 10.9 million shares of Reliance Natural were traded versus with their 30-day average trading volume of 12.9 million.
Reliance Natural had wanted Reliance Industries to honour a private deal between the brothers, struck when the Reliance empire was split, to supply it with 28 million standard cubic metres of gas for 17 years at $2.34, about half the government-set price.
India's Supreme Court ordered the companies to renegotiate the agreement at the government-approved price.
Late last month, Reliance Natural and Reliance Industries said they signed a revised gas supply agreement, but did not disclose details. [ID:nSGE65O09O]
The gas is critical for Anil Ambani's power business, including projects being built by Reliance Power. Reliance Power went public in early 2008 in a $2.9 billion IPO -- India's biggest -- but has never risen above its issue price.
"RNRL's share in CBM (coal-bed methane) blocks, and proposed coal supply logistics and shipping business plans, are still nascent and will not contribute materially to earnings of the merged entity in the medium term," JPMorgan analysts said in a note. The merger would dilute earnings at Reliance Power, the note said.
Reliance Industries operates the country's biggest gas find, in the D6 block of the Krishna Godavari basin off India's east coast. The government determines who gets the gas from the field and at what price. (Additional reporting by Ami Shah and Sumeet Chatterjee; Editing by Ranjit Gangadharan)
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