Floor price of Rs 180-200 set for IPCL - Views on News from Equitymaster

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Floor price of Rs 180-200 set for IPCL

Dec 6, 1999

According to newspaper reports, the inter ministerial group (IMG) has decided on a floor price of Rs 180 200 per share for the divestment of the government's 25% stake in Indian Petrochemicals Corporation Limited (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 decision to set a floor price comes shortly after the IMG gave a go ahead to the disinvestment process. Three companies Reliance Industries, Mitsubishi and the Chatterjee-Soros Group had earlier been short-listed for the bidding process.

The IMG's decision to set a floor price is likely to come as a surprise as there had earlier been no mention of it. Infact, the floor price has been set at a 36% - 53% premium to the market price. The price has been justified on the grounds that the calculation in based on the replacement cost method.

Although the move may seem detrimental to the bidding process, it may just do the trick in winning opposition support for the disinvestment process. On earlier occasions, incumbent governments have been accused of selling the holdings in public sector enterprises (PSEs) at throwaway prices. The setting of the floor price will ensure that the stake would only be sold if it atleast matched the replacement costs of the assets put on the block.

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