Financial Daily from THE HINDU group of publications
Friday, Dec 10, 2004
Mergers & Acquisitions
Industry & Economy - Petroleum
BPCL-KRL merger: ICICI Securities, N.M. Raiji to carry out due diligence
Vipin V. Nair
Kochi , Dec. 9
ACCOUNTING firm N.M. Raiji & Co and ICICI Securities have been mandated to conduct the due diligence for the merger of Kochi Refineries Ltd with Bharat Petroleum Corporation Ltd.
N.M. Raiji & Co will do the due diligence of Bharat Petroleum for KRL, while ICICI Securities will value the latter for BPCL, said Mr B.K. Menon, Managing Director of Kochi Refineries.
The due diligence is expected to be completed by the end of this month. The share-swap ratios for the merger would then be taken to the companies' boards and the government before seeking the approval of shareholders and creditors, Mr Menon told Business Line.
BPCL currently owns 54.81 per cent stake in KRL. The merger is expected to bolster its profitability by adding the healthy margins enjoyed by KRL to its balance sheet.
While marketing companies such as BPCL incur losses because of the prevailing subsidies, refineries saw their profits skyrocketing on account of the current high crude prices.
BPCL lost Rs 1,270 crore last year because of subsides on kerosene and LPG. On the other hand, KRL's refining margins in this year's second quarter rose to $5.60 for each barrel of oil it turned into fuels, up from $2.50 a year ago.
"While BPCL was taking a hit on marketing, its two subsidiaries (that are into refining) were raking in the moolah," Mr Menon said as to why the merger was considered.
The merged entity will have a strong balance sheet, better logistics and capital allocation and an improved balance between refining and marketing margins, he said.
KRL's retailing plans on hold
Mr Menon said KRL's plans to enter the retailing business by setting up 300 outlets in South India had now been put on hold in view of the merger. The company now operates two outlets in Kerala.
"The Ministry has stopped us (from expanding the retailing)," Mr Menon said here at a function organised by the Kerala Management Association. When asked whether KRL would retain its name after the merger, he said such decisions would be taken at a later stage.
Mr Menon said KRL had communicated to the Kerala government its willingness to participate in the proposed `Express Highway,' a Rs 6,500-crore project mooted by the State.
"We would like to be an equity partner in the project," he said. As per the proposal submitted to the government, KRL would supply the entire bitumen required for building the 507-km-long highway and take equity in return.
KRL should also be given the first right of refusal to establish retail outlets and laying gas pipelines along the highway, the company proposed. The project, which ran into controversies as doubts were raised about its impact on the State's environment and social aspects, is still at the concept stage.
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