Swap ratio to hit Bongaigaon investors

Investors of Bongaigaon Refinery & Petrochemicals (BRPL) will become poorer by Rs 1,399 for every 37 shares they hold, if the merger of the company with Indian Oil Corporation (IOC) goes through due to the skewed swap ratio in favour of the latter.

The swap ratio of the BRPL-IOC merger, which awaits final clearance from the ministry of corporate affairs, is set at 37:4, that is, for every 37 BRPL shares held, investors would receive four shares of IOC.

The stock price of BRPL closed at Rs 102.60 on the Bombay Stock Exchange (BSE) on Tuesday, while the stock of IOC closed at Rs 599.30.

Considering the closing share prices of both companies on Tuesday, the shareholders of BRPL would be making a loss of Rs 1,399 at the proposed swap ratio.

According to the Tuesday's closing price, 37 shares of BRPL amount to Rs 3,796.20, while four shares of IOC would amount to Rs 2,397.20, which indicates a clear loss of Rs 1,399 to shareholders of BRPL on every 37 shares held.

After deliberations, the board of IOC had last year recommended that the government approve the merger of its subsidiary company Bongaigaon Refinery & Petrochemicals (BRPL) with itself. As both the companies were public sector entities, a prior approval from the government was essential.

Investment advisor S P Tulsian said: "If the swap ratio in these sorts of deals are not conforming to the stock price, it is then largely a loss to the retail investors, who go by the stock price."

However, some analysts are of the view that the stock price of a company can be one of the barometers while arriving at a swap ratio in merger deals.

To arrive at the swap ratio, the break-up of earnings and asset base too is taken under consideration apart from the stock price, Tulsian said.

The government would be the major beneficiary if the merger of BRPL with IOC goes through at the current swap ratio as IOC already holds 74.46 per cent stake in BRPL.

A legal adviser stated that these kinds of deals should have a fair value, but it would, moreover, be a question of whether shareholders would challenge the deal, which they can do.