IPCL disinvestment blues - Views on News from Equitymaster

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IPCL disinvestment blues

Jun 18, 1999

The bidders for the Governments stake of 25% in IPCL have sought a comfort letter from the Government mainly covering three issues: the future of the Governments remaining 26% stake, a first right of refusal if and when the Government were to decide to offload its remaining stake, and a clause which binds the strategic partner and the government. Indian Petrochemicals Corporation Limited (IPCL) is India's second largest integrated manufacturer of polymers, fibre, fibre intermediaries and chemical products. It is a public sector company with government owning 51% of its equity.

The government has received responses from 11 bidders for its disinvestment in IPCL. However, these bidders have raised some crucial issues, which they would like to be sorted out before the bid for the selloff. One of the queries pertains to the issue of the transfer of management.

The Government expects to rake in approximately Rs 6 bn from the sale of its 25% stake in the company. The issues raised will have wide ramifications in the valuation process of the company. The government could command a hefty premium on its sale if it were to agree to these demands, while on the other hand the refusal to give assurances could jeopardize the entire selloff process.

If the strategic selloff was to go through, IPCL would benefit greatly in terms of new technologies, business acumen and the global perspective of the new management. If the selloff process were to be unsuccessful the opportunity costs for the company would be very high.

Market View:
Despite the improvement in the petrochemicals segment, analysts have withheld their buy recommendations for IPCL, mainly on account of the uncertainty surrounding the strategic selloff process.

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