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Reliance may pull out of IPCL bid - Views on News from Equitymaster
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  • Dec 25, 1999

    Reliance may pull out of IPCL bid

    Reliance Industries (Reliance) and Mitsubishi of Japan have reportedly decided to pull out of the race to acquire 25% of the equity of Indian Petrochemicals Chemical Corporation (IPCL).

    The government had put 25% of the equity of the Rs.31.15 bn IPCL on the block. The company derives 65% of its turnover from commodity polymers, 25% from chemicals and 10% from fibres.

    It was deemed crucial for Reliance to takeover IPCL just to prevent foreign majors such as Shell, BP-Amoco Dow Chemicals etc. from getting a toehold in the Indian petrochemical market. The takeover was crucial primarily because it would not only give it a monopoly but also provide it with a strong base to target the export market particularly the South-East Asian market. Else, it would be left defending its own turf from MNCs who could initiate a price war in the domestic market.

    However, Shell and BP-Amoco dropped out even before the final bid applications came in. Dow Chemicals dropped out citing its pre-occupation with the takeover of Union Carbide. If Reliance and Mitsubishi were to pull out it would leave the IOC-Chatterjee consortium

    It is quite possible that the Reliance pull out may not come to pass. And this could be to pressurise the government into lowering the reserve price. The government had earlier indicated that the reserve price below which the bids would not be accepted would be the average price of the stock over the last six months.

    The disinvestment commission (whose term ended last month) chairman had earlier made a public statement that for competition to be introduced into the local market, domestic players should not be allowed to bid for IPCL’s equity.

    Market view:
    Reliance has been rated as 'Hold' by analysts primarily due to the fact the petrochemical market has been soft over the past quarter.



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