IPCL

GOVERNMENT OF INDIA

MINISTRY OF DISINVESTMENT

DISINVESTMENT IN INDIAN PETROCHEMICALS CORPORATION LTD. (IPCL)

  1. Government of India (GOI) today (17th May,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.

  2. Reserve Price

  3. 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:

  4. 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

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

  6. 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
  7. The highest bid of Reliance Petroinvestments Limited for a price of Rs.1491 crore translates into a P/E of 23 based on EPS of Rs.10 for the year 2000-2001, which is much higher than the P/E multiple of peer group companies, such as Reliance Industries Ltd. (10.5) and GAIL (5.36).

  8. 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:

  9. 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

  10. 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.

  11. 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.

  12. 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.

  13. 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.