Date:11/07/2005 URL: http://www.thehindubusinessline.com/2005/07/11/stories/2005071101700500.htm

Back IOC, IBP boards to decide on swap ratio for proposed merger

Richa Mishra

New Delhi , July 10

AFTER being tossed around between the Ministries of Petroleum and Finance, the issue of swap ratio for the proposed merger of IBP Co Ltd with Indian Oil Corporation Ltd (IOC) has now landed with the boards of the two companies.

Based on the queries raised by the Finance Ministry, the Petroleum Ministry had asked IOC to seek a second opinion from an independent valuator on the proposed swap ratio, which was found unfavourable to the Government.

Following this directive, IOC had written to its merchant bankers, J.P. Morgan and HSBC, asking them if there would be any breach of contract if the views of an independent valuator were sought. Incidentally, the two merchant bankers had not decided the swap ratio, which had been decided by another company, Deloitte. Sources in the Ministry, however, expressed concern at the delay in decision-making on the proposed merger, with some indicating that vested interests seem to be working against it.

In this context, they suggest that the time taken for getting approvals needs to be reviewed because if the same lengthy process continues, then there is possibility of the existing swap ratio being reviewed again because of changing market dynamics.

The proposal for the merger of IBP with IOC, which had been approved by the board of directors of the two companies, based on in-principle approval of the Ministry of Petroleum and Natural Gas, has been awaiting the necessary approvals since December.

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 swap ratio of 125 shares of IOC for every 100 IBP shares. The timeframe for the implementation of the merger was expected to be five to six months from receiving the Government approval.

The Finance Ministry also said IBP was overvalued in the merger and that it would result in a loss in the Government stake in IOC following the merger.

Sources agreed that IBP's share value had come down as marketing companies were reeling under the impact of a highly volatile international oil market.

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 FIIs, banks, mutual funds and the public holding the rest.