IOC may park IBP pie in trust before merger

Indian Oil Corporation (IOC) may transfer its stake in IBP to a trust before merging the standalone marketing firm with itself.

IOC has a 53.58 per cent stake in IBP. It had picked up 33.58 per cent stake through a disinvestment in February 2002 and another 20 per cent, thereafter, from the mandatory open offer by paying Rs 1551 a share.

The trust will get IOC shares in lieu of the IBP shares once the government approves the deal and it would then have a small holding in IOC itself.

The move will prevent IOC to book losses which would have arisen with IBP's stock price now quoting far below than what IOC paid at the time of disinvestment. IBP stock closed at Rs 613.70 on the National Stock Exchange (NSE) on Friday.

The trust will be able to sell the shares at a later date in the market and it could be wound up following that. The profit or loss from the transaction can be taken on IOC's balance sheet then.

An IOC official said the final decision would be taken only at company's board meeting on December 22. "We hope to wrap up the entire process by March 31, 2005," he added.

Earlier, IOC had thought of setting off the entire loss arising out of the merger in its balance sheet and get tax benefits. But this was found to be incompatible with the company laws which says profit and loss arising out of merger can not be set off in this manner.

IOC has posted profit of Rs 7,005 crore in the last financial year. IOC paid over Rs 1840 crore to pick up the 53.58 per cent stake in IBP. At today's valuation IOC's investment in IBP stands at about Rs 720 crore.

Market sources said the swap ratio in IOC-IBP merger could be favourable to IBP since its stock prices is still higher than IOC.

Experts said the merger will come as a lifeline for IBP, the only pure marketing company, from high volatility of international crude oil prices. IBP has posted loss about Rs 70 crore in the first half year of this fiscal and the figure is feared to go up further.