RIL, IPCL boards approve merger at 1:5 ratio

Mumbai, Mar 10 (UNI) The board of directors of Mukesh Ambani-led Reliance Industries Ltd (RIL) and its group company Indian Petrochemicals Corporation Ltd (IPCL) today unanimously approved merger of the two companies at a swap ratio of 1:5.

In effect, five shares of IPCL will be entitled for one share of RIL, a company release here said.

The move to merge IPCL comes after several rounds of restructuring at the Vadodara-headquartered petrochemicals major, when the process began on September 27 last year, when the former navratna company merged six subsidiaries with itself. RIL had paid the government Rs 1,500 crore for its 26 per cent stake and then it picked up more through an open offer for another 20 per cent stake.

Integrating IPCL is set to increase RIL's revenues from the chemicals business from 4 per cent currently to 48 per cent. In fact, IPCL already uses RIL's naphtha to make chemicals. As such, the merger is set to bring down the overall cost for RIL with reduction in the sales tax incidence and also synergise operations.

The merger will be first in a series of moves by RIL to restructure itself to capture faster growth in the petrochemical chain in the coming years with three of the IPCL crackers coming under its fold.

Besides, RIL can use natural gas from its vast repository in the Krishna Godavari basin, which again reduces costs.

RIL Chairman Mukesh Ambani had already announced the company's intent to hive off its oil&gas exploration business into a separate entity. It is also eyeing a stake in Dow Chemical's petrochemicals business, which is currently witnessing a lot of interest from private equity investors.

An alliance with Dow Chemicals will allow the American company to benefit from low costs and give Reliance an entry into America, points out a market analyst. However, this option is still in conceptual stage as the company is set to explore all options available to them.

Over the past five years, IPCL's revenue has increased from Rs 5,527 crore in 2001-02 to Rs 12,362 crore in 2005-06, a compounded annual growth rate (CAGR) of 22 per cent and net profit went up from Rs 107 crore in 2001-02 to Rs 1,164 crore in 2005-06, a CAGR of 82 per cent, the release added.

UNI