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Four years after the Reliance group of industries acquired Indian Petrochemicals

Corporation Limited (IPCL) from the government, IPCL is being merged with the

group's flagship company, Reliance Industries Ltd (RIL). The RIL board, led by

Mukesh Ambani, is meeting on March 10 to consider the merger proposal. This will

be the second mega-merger in the Reliance group after the merger of the Reliance

Petroleum Ltd with RIL in 2002.

IPCL came into the Reliance fold in June 2002 when the Union government, as part

of its disinvestment programme, divested 26 per cent of its equity shares in favour of

Reliance Petroinvestments Ltd (RPIL), a Reliance group company, for Rs 1,440

crore. RPIL acquired an additional 20 per cent equity shares through an open offer

in terms of Securities and Exchange Board of India (Sebi) regulations and raised its

stake to 46 per cent of the company's equity capital. The total cost of the acquisition

was Rs 2,641.45 crore, including the mandatory open offer that it made at the same

price of Rs 231 a share to the public.

The market has been expecting the merger of IPCL with RIL for the last two years.

"It is only natural that IPCL is merged with RIL as both have considerable

synergies," said an analyst. However, RIL shares closed 0.77 per cent lower at Rs

1289.35 in a weak stock market while IPCL closed 0.94 per cent lower at Rs 231.65.

Set up by the government on March 22, 1969, with a view to promoting and

encouraging the use of plastics in India, IPCL's business consists of polymers,

synthetic fibre, fibre intermediaries, solvents, surfactants, industrial chemicals,

catalysts, absorbent and polyesters.

The company operates three petrochemical complexes, a naphtha-based complex at

Vadodara and one gas-based complex each at Nagothane near Mumbai and Dahej on

the Narmada estuary in the Bay of Khambhat. The company also operates a catalyst

manufacturing facility at Vadodara.

From a small 66,000 tonnes cracker producer, the company has come a long way

and today produces over 1 million tonnes of merchant products. Six polyester

companies of the Reliance group Appollo Fibres Ltd (AFL), Central India

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Polyesters Ltd (CIPL), India Polyfibres Ltd (IPL), Orissa Polyfibres Ltd (OPL),

Recron Synthetics Ltd (RSL) and Silvassa Industries Private Ltd (SIPL) were

amalgamated with IPCL with effect from April 1, 2005.

Earlier this month, RIL had announced that the promoter, Mukesh Ambani, would

be hiking his stake in the company by 5 per cent through a Rs 17,000 crore

preferential issue of warrants.

The Reliance Industries is all set to go for the merger of Indian Petrochemicals Corporation Ltd (IPCL)

with RIL. According to the report, the board of members of both companies has planned to meet on

March 10. On that day, both the boards would consider the merger plan. Both companies later issued a

statement to the Bombay Stock Exchange after the closing of the daily business.

The report said further that RIL would possibly hold 53 per cent stake in the newly merged when the

conversion of preferential warrants would be completed.

Kenin Jain, an analyst, said:

This merger was long overdue. It will complete the entire value chain of petrochemical products for Reliance. This

augurs well for both the companies.

Earlier, Reliance was supplying raw materials to IPCL to make final products such as rubber. Now,

Reliance will be able to offer end-to-end product solutions. The new development would make RIL as a

pan-Indian and perhaps Asian dominant firm. It also would result in substantial tax savings for the

merged companies because both companies are buying and selling products from each other.

After the merger, Reliances revenue will be increased from chemicals by 4 per cent to 48 per cent of the

total. Later, analyst said that one share of Reliance will be equal value of four shares of IPCL. But,

according to the book value formula the ratio would be 1:2. Reliance Industries would add more than Rs

11,000 crore in its balance-sheet and Rs 1,163 crore to its profit as well.

Earlier, during the NDA rule in 2002, Reliance had paid Rs 1,491 crore to the government to take 26 per

cent stake in IPCL. Then, in August 2006, the Gujarat High Court had legitimate the merger of six

polyester manufacturing companies such as Apollo Fibres, Central India Polyesters, India Polyfibres,

Orissa Polyfibres, Recron Synthetics and Silvassa Industries with IPCL. After the merger, the

speculations have started coming out about the possible merger of IPCL with Reliance Industries.

According to this year fiscal data, petrochemicals production accounts for 31 per cent of Reliances

revenue. Reliance Industries has been also exploring for petrochemical assets in regions such as the

Middle East, North America and Europe. The company was reportedly close to finalize a $20 billion

acquisition in North America as well.