INDIAN PETROCHEMICALS CORPORATION LTD.
Paid up capital (31.3.00) Rs. 249.05 cr
GoI shareholding (31.3.00) Rs. 148.80 cr (59.75%)
Net worth (31.3.00) Rs. 2961.02cr
Net Profit / Loss (31.3.00) Rs. 188.84 cr
No. of employees (31.3.00) 13543

Major activity Production of chemicals & petrochemicals with focus on polymers
Works located at Nagathone (Maharashtra), Gandhar and Vadodara (Gujarat)

Recommendations of Disinvestment Commission (March 1998)
To offer 25% equity to a strategic buyer along with transfer of management control through a global competitive bidding, care being taken to ensure that the strategic sale does not lead to market dominance by any single player.

Government decision
To offer 25% equity to a strategic buyer along with transfer of management control.

Present status of implementation of Government decision
Warburg Dillon Read (WDR) has been appointed as Advisor. Disinvestment transaction of selling 26% Government equity in favour of strategic partner i.e. Reliance Group has been approved for an amount of Rs. 1,490 crore. 


 

 

DISINVESTMENT IN INDIAN PETROCHEMICALS CORPORATION LTD. (IPCL)

 

          Government of India (GOI) on 17.05.2002 approved induction of Reliance Petroinvestments Limited (Reliance Group) as strategic partner in IPCL, a leading petrochemical PSU, through sale of 26% equity shares at a consideration of Rs.1491 crore.

   

Reserve Price      

 

 

2.       The Advisor (UBS Warburg) had in their report computed the valuation of shares in IPCL by adopting four methods, namely, Discounted Cash Flow, Adjusted Balance Sheet, Comparable Companies and Adjusted Asset Valuation.  The Evaluation Committee considered the valuation of IPCL done by the Advisor and recommended a reserve price:

Reserve Price

Reserve Price for 26% equity

(Rs. in crore)

Approx. equivalent value of 100% equity

(Rs. in crore)

Approx. value per share

(Rs.)

 

845

 

 

3252

 

131

 

 

  The reserve price recommended by the Evaluation Committee was based on the Discounted Cash Flow methodology, as it is the most appropriate valuation methodology for a going concern.

 

  Bids received

 

3.       The bids submitted by  the three bidders is summarized below:-

 

Bidder

Bid value for 26% equity (Rs. in crore)

Approx. equivalent value of 100% equity (Rs.in crore)

Approx. value per share (Rs.)

Reliance Petroinvestments Limited

1491

5735

231

Indian Oil Corporation Limited

  826

3177

128

Nirma Chemical Works Limited

 

  711

2735

110

 

 

4.       The highest bid of Reliance Petroinvestments Limited for a price of Rs.1491 crore translates into  a  P/E of 58 based on EPS of Rs. 4 for the year 2001-02, which is much higher than the  P/E multiple of peer group companies, such as Reliance Industries Ltd. (10.5) and GAIL (5.36).

 

5.       The figures of Profit after Tax (PAT), rate of Dividend declared and share of GOI on 26% equity for last five years are as under:

 

Years

Profit after Tax

(Rs. in crore)

Dividend on 26% Government equity shares

(Rs. in crore)

1996-1997

510

25.8

1997-1998

244

25.8

1998-1999

  29

  6.5

1999-2000

189

12.9

2000-2001

249

19.4

 

          Taking into account an accrual of 10% on the sale proceeds realized from transfer of 26% Government equity stake to the Strategic Partner, an amount of Rs.149 crore would accrue per year as compared to an average of Rs. 18 crore per year approx. received by Government of India as dividend from IPCL.

 

Background

 

6.       IPCL, one of the India’s leading petrochemical products company has been classified as operating in ‘non-core’ sector. The total paid up equity of the company is Rs. 248.22 crore, out of which Government holds shares of Rs.148.80 crore.  The equity sold to the strategic partner would be of face value Rs.64.54 crore (26.6%).  The Government on 16.12.1998 had  decided ‘in principle’ to the disinvestment in IPCL through strategic sale.  The Government had invited Expressions of Interest from interested investors through a Press advertisement. 

 

7.       Meanwhile, in November 2000, in view of synergy of operations and interests of IOC and IPCL Government also explored the possibility of the Vadodara Complex of IPCL being transferred to IOC and then disinvestment of 25% equity processed in respect of rest of the IPCL. Finally, Government decided on 12.11.2001 to no longer pursue this route and decided instead on continuing the effort for strategic sale for IPCL as a whole.   It was decided that the equity offered for strategic sale should be raised to 26% instead of 25% proposed earlier with the commitment of disinvesting atleast a further 25% equity.

 

8.       Government was assisted by M/s. UBS Warburg as Advisor for the transaction.  The legal advisors were Pathak & Associates and the Asset Valuers were M/s. Deloitte, Haskins & Sells.

 

9.       Interested investors submitted expression of interest (EOI) in December 2001.  The short listed parties completed the due diligence exercise and the transaction documents were agreed upon, after a number of rounds of discussions with bidders.  Thereafter, based on these documents, financial bids were received from the bidders on 29.4.2002. 

 

Last updated on 21/8/2002