The Hindu Business Line : Petroleum Ministry to approach Cabinet for IBP-IOC merger

The merger proposal was held up because the Finance Ministry had raised questions on the swap ratio on the grounds that IBP had been over-valued. The Finance Ministry also felt the merger would result in a reduction in the Government stake in IOC. This led the Petroleum Ministry to ask IOC to get a second opinion.

After due clarification and satisfying the queries of the nodal ministry, sources said the swap ratio is now to be put up for Cabinet approval. A relative valuation of equity shares on behalf of IOC and IBP had been carried out, and the boards of both the companies had recommended a ratio of 125 shares of IOC for every 100 IBP shares, sources said adding that the Cabinet proposal does not suggest any change in the swap ratio.

Currently, the Government's stake in IOC is 82.03 per cent with the remaining being held by public, financial institutions and foreign institutional investors. At the end of March 2005, IOC held a 53.58-per cent stake in IBP with foreign institutional investors, banks, mutual funds and the public holding the rest.

When asked whether the Petroleum Ministry had been able to convince the Finance Ministry, sources said the issue was very similar to the one raised by the latter when considering the merger proposal of Kochi Refineries Ltd with BPCL.

The swap ratio has to be considered from the period when the merger proposal is sent, sources said.

If the swap ratio is taken considering the current financial condition of IBP, then the shareholders of the company are going to suffer, they said.

Giving the reason for the merger, IOC has said the amalgamation is expected to result in consolidation of the business of marketing of petroleum products into one entity and in strengthening the position of the merged entity.

At present, both the companies are engaged in the business of storage, distribution and marketing of petroleum products, both in retail and direct consumer trade. In some places, the infrastructure facilities overlap and costs are incurred in operation and maintenance of these facilities.

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