The Hindu Business Line : IBP firm on current swap ratio for merger with IOC

IBP Co Ltd, which has taken the worst hit for selling petroleum products below cost, is optimistic about completing its merger procedure with Indian Oil Corporation Ltd (IndianOil) by March 2006. IndianOil and IBP expect to make a presentation before the committee of secretaries (CoS) by mid-December to clarify on issues hindering the final merger.

A senior official of IBP also told Business Line that there would be no change in the current swap ratio of 125 shares of IndianOil for every 100 IBP shares, proposed by the boards of the two companies. The company had on October 20 received in-principle nod from the Union Cabinet for the merger. However, there were some reservations on the proposed swap ratio.

About the Finance Ministry's objection to the valuation of the company, the official said questions were raised on the swap ratio. Based on valuation norms and SEBI guidelines, the company had proposed certain numbers to its financial consultant, who finally arrived at the current swap ratio, he explained. The two companies have arrived at these numbers through a scientific procedure and any financial ratio change at this juncture would set the clock back, the official added.

The Finance Ministry had raised questions on the swap ratio on the grounds that IBP had been over-valued. It had held that the merger would result in the reduction of the Government stake in IndianOil. Currently, the Government's stake in IndianOil is 82.03 per cent with the remaining being held by the public, financial institutions and foreign institutional investors (FII). At the end of March 2005, IndianOil held a 53.58 per cent stake in IBP with FIIs, banks, mutual funds and the public holding the rest.

Further, the merger proposal has suggested a creation of a trust. This merger route would help IndianOil avert losses from getting on to its books.

For the current fiscal, IBP is hoping to make marginal profits, as it was expecting to get some share of the oil bonds to be issued by the Government. The sales of the petroleum products has picked up, which could help in closing the year with some profits, the official said.

IBP losses had gone up by 212.9 per cent at Rs 190.53 crore during the second quarter of the current financial year against a loss of Rs 60.89 crore during the same quarter last fiscal. IBP posted a net loss of Rs 234 crore in the first quarter of the fiscal under review. For the first-half of the current fiscal the company had suffered losses of about Rs 424 crore, as it does not have refining margin to offset losses on sale of petrol, diesel, LPG and kerosene.

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