The Hindu : Decks cleared for MFL divestment

Online edition of India's National Newspaper
Friday, May 30, 2003

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Business

Decks cleared for MFL divestment

By K. T. Jagannathan

CHENNAI MAY 29. The National Iranian Oil Company (NIOC) has decided to exit Madras Fertilizers (MFL), a joint venture between the Iranian firm and the Central Government.

In an official communication to the Bombay Stock Exchange, MFL said that the move followed an agreement between the two joint venture partners signed on Tuesday.

The National Iranian Oil Company holds 25.77 per cent stake in MFL, the Central Government 59.5 per cent, institutional investors around 4.54 per cent and private corporate bodies 1.54 per cent. About 8.65 per cent of the shares is held by the general public.

NIOC agrees to sell stake

<167,4p,1>The agreement is expected to clear the path for the much talked about disinvestment in MFL. The Government, it may be noted, has proposed to divest 33.50 per cent of its holding in the first phase to bring its stake to 26 per cent. Now that the Iranian company has agreed to exit MFL, the total offer in the first tranche of disinvestment will be 59.27 per cent. The pact with NIOC, it is explained, will not only hasten the disinvestment process but also facilitate better price realisation for the joint venture partners.

The process of disinvestment of Government holding in MFL to a strategic partner has hit the speed-breaker. The reasons are not far to seek. Any prospective suitor may not wish the presence of one more stakeholder (NIOC) sitting at MFL. The Government, too, appears to appreciate the predicament of prospective suitors. Hence, it has used its good offices to convince NIOC to exit for mutual benefit.

MFL, incorporated in 1966, was initially a 51:49 joint venture between the Central Government and AMOCO of the U.S. In November 1972, NIOC picked up 50 per cent of the 49 per cent holding (24.50 per cent) held by AMOCO in MFL. Consequently, MFL had become a three-way joint venture between the Government, AMOCO and NIOC. Much later, the Government and NIOC picked up the AMOCO shares (according to their holdings) when the U.S. firm exited MFL.

With the latest turn of events, the decks are cleared for the Government to seek `expression of interest' once more from prospective suitors. An inter-ministerial group will vet these suitors and forward its recommendations to the Cabinet for shortlisting them. Then, the shortlisted suitors will be asked to put in their bids. Thereafter, the inter-ministerial group will set the reserve price. The bids will be opened subsequently.

According to Sukumar N. Oommen, Chairman and Managing Director, MFL, the whole process will take 4-6 months to complete now that the whole process is put on a `fast track'.

Mr. Oommen has asserted that MFL is a `solid company' and that it will attract quite a number of suitors.

Though NIOC has agreed to put its shares on the `shopping block' along with that of the Governmet, sources said that the Iranian company has not ruled out its participation in the `bidding exercise' through a special purpose vehicle.

The foreign parent, it is gleaned, views that fertilizer is a nice sector to be in, notwithstanding the current policy related problems. Given this view and the strength of MFL, sources are not surprised by NIOC's thinking on participating in the `bidding process'. There will, however, be many `ifs and buts' for the NIOC option to become a reality, it is argued.

Interestingly, the move by NIOC to exit MFL comes even as the Indian Oil Corporation (IOC) has initiated parleys for buying out NIOC's stake in its subsidiary, Chennai Petroleum. IOC has offered a swap arrangement under which NIOC could give up its shares in Chennai Petroleum. In lieu of this, NIOC has been promised shares in IOC.

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