IPCL placed on rating watch

The outstanding ratings on various non-convertible debenture issues, short term debenture issue, commercial paper programme and fixed deposit of Indian Petrochemicals Corporation (IPCL) have been placed on `rating watch with developing implications'.

The Union Government has decided to sell IPCL's integrated petrochemical manufacturing unit located at Vadodara to Indian Oil Corporation (IOC) on a nomination basis. The sale is expected to lead to synergies for IOC through integration of IPCL's cracker with IOC's Koyali refinery located close to the complex and the expected savings in sales tax on transfer of naphtha by IOC to the unit.

The rating agency expects the sale to be concluded over the next 2-3 months and a significant part of the sale proceeds will be utilised towards reduction of debt for improving the capital structure of the company. Further, the sale of the Vadodara unit would have a positive impact on IPCL's cost structure.

In view of this development, IPCL's rating has been placed on rating watch with developing implications.

IPCL enjoys an established market position in the domestic polymer industry and integrated manufacturing operations. IPCL's short term liquidity position continues to derive comfort from its foreign currency deposits. These factors are partly offset by the company's vulnerability to the movement in international prices of petrochemicals, overcapacity in the domestic polymers industry and upwards revision in natural gas prices from ONGC.

Further, the company is open to risk of further revisions in natural gas prices by ONGC from April 2001. The rating also factors the company's continued high level of gearing, moderate interest coverage and large loan repayments over the short to medium term.

In addition, the rating takes into consideration the fact that full integration of the Gandhar plant is dependent on timely completion of the proposed pipeline from Hazira to Gandhar to augment feedstock supplies. The government's decision on divestment of its stake in IPCL would be a critical determinant of the company's future business and financial risk profile.

IPCL is the second largest petrochemical producer in the country with an established network and a wide range of product grades to suit customer requirements. The company also holds an established position in the fibres and fibre intermediates and chemical products derived from hydrocarbon feedstocks. During the nine month period ended December 31, 2000, the company reported profit of Rs. 150 crores on a net sales of Rs. 3,696 crores.

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Section  : Business
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