The Hindu Business Line : IOC board clears IBP merger plan

INDIAN Oil Corporation Ltd (IOC), the State-owned petroleum refining and marketing major, plans to merge with itself its subsidiary, IBP Ltd, and also set up a new exploration company with a war chest of $2 billion.

The IOC board met here on Wednesday and gave an "in-principle" nod to the two proposals, which will now be sent to the government for approval, the company Chairman and Managing Director, Mr M.S. Ramachandran, said.

As per the proposal approved by the board, IOC, which has a 51 per cent market share for petroleum products in the country, is to merge IBP with itself.

IOC holds a 53.58 per cent equity stake in IBP following disinvestment and open offer of the oil retailing company in 2002.

The Ministry of Petroleum, when contacted, said IOC's recommendations were yet to reach it and the government could react only after going through the proposals.

The IOC-IBP merger will be completed by offering IOC shares to existing shareholders of IBP in a ratio that will be decided after government approval of the proposal, an IOC spokesman told Business Line.

The two companies would be valued and Cabinet approval would be necessary as the government's equity would be marginally diluted due to the share swap, the spokesman said.

"We decided to merge IBP with ourselves to have greater operational efficiencies and rationalise investments. With the two companies under one board, we would be able to get the advantages of better logistics planning and ensure that our investments do not work at cross-purposes with each other," he said.

Moreover, the two companies would then be able to avoid direct competition with each other as, at present, they are fighting for the same set of customers.

IOC has about 9,500 retail outlets while IBP has 2,700. With the merger, the two companies would have over 12,000 outlets.

At present, IOC accounts for about 40 per cent of the total diesel and 36 per cent of petrol sold in India. Its subsidiary accounts for 9 per cent of the country's diesel sales and 5-6 per cent of retail petrol sales.

The IOC board also gave an in-principle approval to an oil exploration subsidiary, which would spearhead the company's foray into the upstream sector.

The exploration subsidiary will have a war chest of $2 billion and will look to acquire a medium-sized foreign firm in the upstream business.

The acquisition of a foreign firm will help IOC diversify into oil exploration much faster than organic growth, the spokesperson said.

IOC has identified firms such as Niko Resources of Canada, Cairn Energy, Tullow Oil and Premier Oil (all of the UK) as possible targets.

Government sources indicated that the proposal would be taken up only after the new Ministry was in place after the general elections.

"In any case, it is a long-drawn process that will take several months to be completed," a senior Petroleum Ministry official said.

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