IPCL stake may be sold by open bidding - Views on News from Equitymaster

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IPCL stake may be sold by open bidding

Aug 27, 1999

According to newspaper reports, leading petrochemical companies have called for an open auction for the government's 25% stake in Indian Petrochemicals Corporation Ltd. (IPCL). IPCL (FY99 Net Sales: Rs 31.1 bn) is India's second largest integrated manufacturer of polymers, fibre and fibre intermediaries and chemical products. It has two integrated petrochemical complexes and is in the process of setting up a third one.

The IPCL bid is likely to elicit a response from major global petrochemical players, including Reliance. The expected response is mainly due to the large size of the domestic market and the turnaround in the petrochemicals cycle, which has made the business environment conducive for fresh investments.

An open bidding system will be much quicker and will involve a greater level of transparency as compared with the closed bid system. If the process were to go through successfully, then India would have opened a new avenue for disinvestment.

The Finance Bill for FY00 has taken credit for Rs 100 bn arising from disinvestment proceeds. Therefore it is essential that the disinvestment process be pursued in all earnestness to avoid any fiscal implications in the future.

Market View:

Analysts have rated the stock as a 'BUY' on account of the turnaround in the petrochemicals cycle. Also the proposed handover of the management to a private concern has supported the 'BUY' rating.

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