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`In-principle' nod for IBP

Our Bureau

NEW DELHI, June 23

THE Cabinet Committee on Disinvestment (CCD) today granted an in-principle approval for disinvestment of Government equity in IBP Company Ltd.

On a later date, the Cabinet will consider `options' in respect of specific disinvestment proposals in the company.

The Cabinet has also revalidated a proposal to disinvest 10 per cent equity in Indian Oil Corporation (IOC). The CCD order states that the equity float will be carried out only after the public sector stand-alone refineries are aligned with marketing com panies.

According to officials, disinvestment in IBP Company will be a tough affair since the company is mainly a petro-product marketing company and hence the issue of valuation arises since the distribution market have not been opened up for private sector par ticipation.

Further, the company is reeling under heavy loan obligations; it owes the Oil Industry Development Board IDB Rs. 560 crores. In this context, the Ministry of Petroleum and Natural Gas is in the process of finalising a Cabinet note for the financial restr ucturing of IBP Company which aims at reducing the debt liability of the company and in turn will present a healthier balance sheet to prospective buyers.

The Ministry's proposal seeks to enable IBP Company to make a preferential allotment of up to 17.5 million shares (44 per cent equity stake at current prices) to OIDB (a statutory body) which has loaned Rs. 560 crores to IBP Company.

The proceeds will be used to retire a portion of the loan amount.

IBP has a paid-up share capital of Rs. 22.15 crores. At present, the Government has a 59.69 per cent holding; FI and banks 16.35 per cent; employees 0.7 per cent; and the public 23.37 per cent.

Although the Government is planning to take a Cabinet nod for allotment of 17.50 million shares, it is planning to convert around 13.5 million shares.

In the event that 13.50 million shares are converted at current market prices, both the OIDB and the Government will end up with around 37 per cent holding in the company.

The other sell-off issue relates to the buyers. Since Government-owned BPCL and IOC have expressed serious interest and have the financial capability to pick up controlling stake in the company, it remains to be seen if they will be allowed to participat e in the disinvestment process. In case they are not, the competition would be reduced to Reliance Petroleum Ltd, Essar and Mangalore Refineries and Petrochemicals Ltd (MRPL) since investment of Rs. 20,000 crores or a 3 mmtpa refinery is a precondition t o access the downstream sector.

The Cabinet will also be shortly considering a move to make Chennai Petroleum Corporation Ltd and Bongaigaon Refineries and Petrochemicals Ltd (BPRL) as subsidiaries of Indian Oil Corporation (IOC); and Cochin Refineries Ltd (CRL) as a subsidiary of Bhar at Petroleum Corporation Ltd (BPCL).

In the case of Numaligarh Refineries Ltd, BPCL's 32 per cent stake is being raised to 51 per cent by buyout of IBP's 19 per cent stake in the company. IBP had paid around Rs. 170 crores for the 19 per cent stake which again would be used to retire some p art of the OIDB debt.