Govt kicks off IPCL stake sale

MUMBAI, JAN 22: The government has kicked off the process of divestment in Indian Petrochemicals Corporation Ltd (IPCL) through strategic...

MUMBAI, JAN 22: The government has kicked off the process of divestment in Indian Petrochemicals Corporation Ltd (IPCL) through strategic sale of 25 per cent stake by inviting bids for a global advisor to manage the entire process.

The appointment of global advisor is crucial to the enhancement of sale value as the divestment process involves the transfer of management control to the strategic partner. “The potential bidder must have a track record of having successfully concluded similar strategic sale to the tune of $250 million,” the government has said in a public notice.

Global petrochemical giants such as Shell and Dow Chemicals are believed to be making a strong pitch for becoming the strategic partner in the petrochemical behemoth. The government has invited bids from reputed investment and merchant banks, financial institutions and consulting firms to be appointed as global advisor for strategic sale in IPCL.

The appointment of a global advisor comes nearly two years after the recommendationof the Disinvestment Commission headed by G V Ramakrishna to offload 25 per cent stake in IPCL to a strategic partner. Though the IPCL board had warmed up to the idea of the government pruning its stake to 26 per cent, it wanted the balance equity to be spread among financial institutions instead of roping in a strategic partner. The reasoning was that the think-tank in the corporation could, on its own, bring about greater flexibility in operations once the centre decided to play a passive role.

The IPCL board suggested this alternative to the government which was rejected in a recent meeting of the core group of secretaries. It, instead, okayed the recommendations of the Disinvestment Commission and announced that a global advisor would soon be appointed to facilitate the privatisation process.

Incidentally, the government had also recently dropped the stipulation which stated that roping in a strategic partner should not lead to a monopoly situation. For any global giant, a 25 per cent stake in IPCLwould translate into considerable savings what with the company’s scrip ruling at only Rs 83.25. The payment for this stake would be substantially lower than the cost involved in setting up a greenfield project.

While the rough patch in the petrochemical industry has taken the sail out of IPCL’s winds, it has managed to weather competition. Unlike players who lost out the market share to Reliance due to unviable operational capacity plants, IPCL has two integrated world class capacities and today is in the process of setting up the third integrated plant at Gandhar phase-2.

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The phase-2 expansion of the integrated complex at Gandhar is nearing completion. Once this is done, IPCL would be the biggest producer of ethylene, and number two in poly vinyl chloride, polypropylene, polyethylene in India.

Moreover, IPCL manufactures polybutadiene rubber, which has potential demand from the automobile sector. The construction of a jetty at Dahej is helping the company save substantially in naphthaimports.