The inter-ministerial group has cleared the strategic disinvestment (25% stake) of Indian Petrochemicals Corporation Limited (IPCL). The group has decided to invite bids from three short listed candidates-Reliance, Mitsubishi and Chatterjee-Soros Group.
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 decision by the government to go ahead with the disinvestment of the stake will benefit all the parties involved. The government is expected to realise approximately Rs 8 bn (8% of the targeted amount to be raised by divesting stakes in public sector units by March 2000) from this exercise. This will go a long way in alleviating the government's fiscal position.
IPCL, on the other hand, will benefit from the entry of a new management that will be well experienced and have access to larger resources. Furthermore, the reduction in government holding will permit the company's new management to take proactive decisions to take on competition. In short, a new management, greater degree of freedom and access to larger resources will provide the company all the ingredients that are required to become more competitive in the domestic and international markets.
The shareholders of the company will benefit, as they will get an exit option when the winner of the bid makes an open offer to acquire an additional 20% in the company. The exit option in all likelihood will be at a premium to the existing stock price.
However there are certain concerns. Of the three bidders, only Reliance has a presence in the domestic petrochemicals business in a major way. The other companies would thus be expecting to make a back door entry into India by acquiring the stake. On the other hand, if Reliance were to win the bid, it would become a near monopoly player in the country. This could be detrimental to the existing competitive scenario in the industry. The other concerns pertain to the issue of excess manpower. This is a politically sensitive issue and could derail the entire process.
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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