IBP-IOC merger: IBP firm on swap ratio
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IBP-IOC merger: IBP firm on swap ratio

By agencies   |   Wednesday, 30 November 2005, 08:00 Hrs
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NEW DELHI: IBP Co Ltd, which has taken the worst hit for selling petroleum products below cost, is optimistic about completing its merger procedure with Indian Oil Corporation Ltd (IOC) by March 2006. IOC and IBP expect to make a presentation before the committee of secretaries (CoS) by mid-December to clarify on issues hindering the final merger.

A senior official of IBP said that there would be no change in the current swap ratio of 125 shares of IOC for every 100 IBP shares, proposed by the boards of the two companies. The company had received in-principle nod from the Union Cabinet for the merger. However, there were some reservations on the proposed swap ratio.

Based on valuation norms and securities and exchange board of India (SEBI) guidelines, the company had proposed certain numbers to its financial consultant, who finally arrived at the current swap ratio, he explained. The two companies have arrived at these numbers through a scientific procedure and any financial ratio change at this juncture would set the clock back, the official added.

The Finance Ministry P Chidambram had raised questions on the swap ratio on the grounds that IBP had been over-valued. It had held that the merger would result in the reduction of the Government stake in IOC. Currently, the Government's stake in IOC is 82.03 percent while the remaining stake is with public, financial institutions and foreign institutional investors (FIIs). At the end of March 2005, IOC held a 53.58 percent stake in IBP with FIIs, banks, mutual funds (MF) and the public holding the rest.

Further, the merger proposal has suggested a creation of a trust. This merger route would help IOC avert losses from getting on to its books. For the current financial year, IBP is hoping to make marginal profits, as it was expecting to get some share of the oil bonds to be issued by the Government. The sales of the petroleum products has picked up, which could help in closing the year with some profits, the official said.

IBP losses had gone up by 212.9 percent at $43.30 million during the second quarter of the current financial year as against a loss of $13.83 million during the same quarter last financial year. IBP posted a net loss of $53.18 million in the first quarter of the current financial year under review.

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