The ministry for petroleum and natural gas has turned down the Disinvestment Commission's recommendations opposing IBP Company Limited's public issue.
The petroleum ministry has conveyed its stand on the matter to the department of economic affairs.
It has explained that since the Cabinet has already given its approval for the public issue by IBP to raise the Rs 60 crore required for meeting funds for its various projects, it would not be possible for the ministry to reverse this decision.
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The ministry said that the Cabinet had already given its approval for the public issue before the Disinvestment Commission's recommendations on IBP were received.
Under the circumstances, it would not be proper for the government to postpone a decision on the public issue.
This would further delay implementation of IBP projects, the ministry argued.
The commission had recommended that IBP's immediate needs for funds should be met by encashing Units-64 to the extent of about Rs 90 crore.
These should be supplemented by cash receipts from the oil pool account and additional borrowings, if necessary, from the Oil Industry Development Board (OIDB).
"By this process, not only the company's own need for funds be met, the government could realise substantial amounts up to Rs 400-500 crore by a strategic sale of 33.9 per cent of shares while still retaining 26 per cent shareholding.
"This would be possible only if the government's present holding is maintained at 59 per cent without dilution through the proposed public offer."
The Divestment Commission has expressed the opinion that if the government share is reduced to 51 per cent as a result of the public issue, it would not be feasible to offer 25 per cent to a strategic buyer with the government retaining 26 per cent.
This is essential in view of IBP's various activities and its commitment in the Numaligarh refinery.
The commission has stressed the need for a strategic partner for IBP in view of its current competitive position vis-a-vis other companies in the oil sector and considering its competitive position in a decontrolled scenario.
It has said that the postponement of the Initial Public Offering (IPO) could lead to significant advantages both for the company as well as the government. Firstly, the government could offer about 33.9 per cent of the equity to a strategic partner instead of 25 per cent.
This increase of 8.9 per cent together with the promise of management control will help substantially improve government realisation.
Secondly, the induction of a strategic partner at this stage itself will strengthen IBP to face increased competition and prepare the company for the oil reforms.
"Given the current poor capital structure of IBP and the fairly large requirement of funds over the medium term, it is essential to induct a strategic partner who could pump in equity funds and help the company to raise additional debt funds."
The commission has regretted that in spite of the government having referred IBP to it to examine the possibility of disinvestment, a decision on public issue has been taken without waiting for its recommendations.