THE long pending merger between India’s largest oil marketing company Indian Oil (IOC) and its Assam based subsidiary Bongaigaon Refinery and Petrochemicals (BRPL) consummated on 25 March ‘09 after the Ministry of Corporate Affairs, which oversees the mergers between public sector companies, tendered its consent. Both the boards had approved the merger in November ‘06, which was followed subsequently by approvals from shareholders as well as other regulatory authorities.
The record date for the share swap is yet to be announced. The shareholders and creditors of both the companies had long ago conceded their approval for the merger with a swap ratio of 4:37 (four shares of IOC for every 37 shares of BRPL).
Prior to the merger Indian Oil held 74.5% stake in BRPL, which is IOC’s second largest subsidiary in terms of net sales. As a result, IOC will have to issue 55.1 lakh equity shares for the outstanding BRPL shares, which amounts to equity dilution of less than 0.5%. In the trailing 12-month period, both the companies have incurred net losses and hence if we compare the FY08 net profit numbers, the merger is slightly EPS accretive for IOC investors.
Indian Oil’s petroleum refining capacity, which already stands at 44 million tonnes per annum (mtpa), will now stand 4.5% higher at 46 mtpa. BRPL’s rated capacity is 2.35 mtpa, however, it is operating below 85% utilisation due to lack of availability of crude oil.
BRPL had set up facilities to produce petrochemicals such as di-methyl terephthalate (DMT) and polyester staple fibre (PSF) between 1985-88. However, these facilities were closed in November 2005 due to lack of commercial viability. The refinery itself suffers from lack of sufficient crude oil supply due to dwindling crude production in the north eastern region. However, the refinery being located in north east enjoys 50% excise duty waiver. IOC already has another refinery in this region at Digboi. Through this merger, IOC will also save on sales tax, which it had to pay earlier on marketing of BRPL’s refined products.
The record date for the share swap is yet to be announced. The shareholders and creditors of both the companies had long ago conceded their approval for the merger with a swap ratio of 4:37 (four shares of IOC for every 37 shares of BRPL).
Prior to the merger Indian Oil held 74.5% stake in BRPL, which is IOC’s second largest subsidiary in terms of net sales. As a result, IOC will have to issue 55.1 lakh equity shares for the outstanding BRPL shares, which amounts to equity dilution of less than 0.5%. In the trailing 12-month period, both the companies have incurred net losses and hence if we compare the FY08 net profit numbers, the merger is slightly EPS accretive for IOC investors.
Indian Oil’s petroleum refining capacity, which already stands at 44 million tonnes per annum (mtpa), will now stand 4.5% higher at 46 mtpa. BRPL’s rated capacity is 2.35 mtpa, however, it is operating below 85% utilisation due to lack of availability of crude oil.
BRPL had set up facilities to produce petrochemicals such as di-methyl terephthalate (DMT) and polyester staple fibre (PSF) between 1985-88. However, these facilities were closed in November 2005 due to lack of commercial viability. The refinery itself suffers from lack of sufficient crude oil supply due to dwindling crude production in the north eastern region. However, the refinery being located in north east enjoys 50% excise duty waiver. IOC already has another refinery in this region at Digboi. Through this merger, IOC will also save on sales tax, which it had to pay earlier on marketing of BRPL’s refined products.
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