The BJP affiliated labour union has proposed to pick up 30% of the government’s 59% equity in Indian Petrochemical Corporation (IPCL).
IPCL is the second largest polymer company, has a strong distribution network and has added capacities (a 160,000 tonne polyethylene plant, a gas cracker unit and a mono-ethylene glycol plant at Gandhar) as well as import facilities in the last year.
IPCL has really become a test case for the government’s disinvestment strategy. The government invited bids almost a year ago. Along with Indian petrochemical companies viz. Reliance and Haldia Petrochemicals, global majors such as Dupont, Mitsubishi, BP-Amoco submitted their bids. After the last date IOC entered the race in a tie-up with Haldia Petrochem.
The delay in the disinvestment process led to withdrawal by all foreign companies. Indian Oil has been debarred since they submitted their bids after the due date. Thus the only bidders left are Reliance and Haldia Petro with the former most likely to bag the company.
Meanwhile the delay in the disinvestment process has led to IPCL delaying the investment in four projects involving an outlay of Rs 27 bn, one of which was a naphtha cracker that would have allowed it to dramatically improve margins in the current year. Not only will the company now risk missing the upswing in the cycle but also faces the danger that if it decides to finally commit the money for expansion the capacities could come up at a totally inopportune time.
Further, one cannot imagine the view that the bidders would take of an employee union taking a stake in the company and the impact it will have on the labour policies that the new management would like to implement. All in all tough times await the company in the near future.
While IPCL’s business fundamentals remain weak, a change in management was expected to result in a sharp re-rating of the stock. This proposal could further delay the disinvestment process and delay the re-rating further.
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