The Telegraph
Since 1st March, 1999
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IBP merger ratio left unchanged

Calcutta, Aug. 8: The ministry of petroleum and natural gas will go ahead with the original IBP-IOC merger swap ratio, overriding the objection by its finance counterpart.

The ministry will place the proposal before the cabinet this month.

If the cabinet approves it, the actual merger process will be concluded by the end of this financial year.

The boards of Indian Oil Corporation (IOC) and IBP have approved a swap ratio of 1:1.25, which has also found favour with the petroleum ministry.

The finance ministry, however, objected to the merger ratio, which is in favour of IBP, arguing that it would lead to a dilution of government holding in IOC.

According to the swap ratio, shareholders of IBP will get 125 shares of IOC for every 100 shares held.

The government’s stake in IOC is 82.03 per cent, while IOC holds 53.58 per cent in IBP.

The petroleum ministry feels that the government holding in IOC will be marginally lowered. As a result, the process should not be delayed further given IBP’s poor financial health.

According to an estimate, half of its net worth will be eroded by the middle of this year if the government does not raise retail prices.

Moreover, the committee on oil PSU restructuring has also recommended the merger of all subsidiaries with their parents.

As a result, IOC has started the merger process of Bongaigaon Refineries and Petrochemical Ltd (BRPL) with itself.

Against this backdrop, the petroleum ministry has decided to expedite the IBP-IOC merger process, which is hanging fire for quite some time.

The IOC board took up the issue in April 2004 and the gave its stamp of approval in December.

But the finance ministry said the material benefit derived out of the merger has not been pointed out.

Following the merger, IBP will be a division of IOC.

In the first quarter of this year, IBP was the worst hit among the oil marketing companies. It bought products at international prices and had to sell them at a government-regulated lower price.

Other oil companies like IOC, HPCL, BPCL could offset their marketing loss with a refining margin, which was an all-time high in the last quarter.

Experts said the material benefit from the merger might not be high at this point. In all likelihood, the loss on the books of IBP will just get transferred to IOC.

“A cost-cutting exercise will not reduce losses to a great extent as the crude itself contributes to 93 per cent of the cost,” he said.

However, IBP is trying to reduce expenses in its own way. For instance, it has stopped advertising completely.

On the other hand, IOC has started work on the integration process. The SAP package for ERP, operational in IOC, is being extended to IBP and expected to be completed by December.

On the bourses today, IOC stock was down by Rs 12.60 to close at Rs 421.55 while IBP went down by Rs 8.4 to close at Rs 427.75.

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