``The equity expansion should precede any disinvestment of Government equityin the company to ensure improved returns to shareholders,'' IBP chairmanand managing director SN Mathur told PTI.

Immediately after making a demand for equity expansion before the petroleumminister Ram Naik recently, Mathur said that part of the Rs 500-crore loanfrom the Oil Industrial Development Board (OIDB) could be converted intoequity to bring down its high debt-equity ratio.

IBP's equity expansion petitions come along with a plea to Naik for fixingthe marketing margins for the petroleum products that had been hanging firefor the last two years and was affecting the company's bottom line seriously.The disinvestment commission had recommended lowering of Government equityin IBP from the present 59 per cent to just 26 per cent by selling it to astrategic partner.

The company officials said that they would give a detailed presentation tothe petroleum ministry on these issues later this month after getting anassurance from Naik that all their demands would be considered by him.IBP, with investment plans of over Rs 800 crore during the Ninth Planperiod, was finding the liquidity crunch and was forced to take costliermarket borrowings against its outstandings of Rs 175 crore from oilcoordination committee to meet even working capital expenses, officials toldNaik.

``More than half of the company's surpluses were going as interest paymentsin servicing these debts,'' Mathur told Naik saying this posed tremendousfinancial pressures on an oil marketing company. As per the 1999-2000performance, budget of the petroleum ministry, the debt equity ratio of IBP,which notched a turnover of Rs 5,670 crore in the last fiscal, was projectedto be brought down to 0.48:1 from the target of 2.28:1 in the last financialyear.

IBP's paid up capital stood at Rs 22.15 crore at the beginning of 1998-99even as its authorised capital was doubled to Rs 100 crore in the currentfinancial year, the document said.

The company officials said that capital restructuring would help it raisethe borrowings at comfortable terms instead of costlier credit in view ofthe high debt-equity ratio, particularly to meet the Ninth Plan investmentneeds.

In the current fiscal alone, the company is targeting to raise as much as Rs481 crore through external capital resources including foreign commercialborrowings, OIDB, rights issue, debenture etc. The company is estimated tohave raised about Rs 215 crore through the external capital resources (otherthan from Union Government) as against the Ninth Plan target of over Rs 900crore to finance the investment plans, the document said.

Officials said that even the high-powered Sengupta committee on the oilsector, set up by the petroleum ministry, had recommended capitalrestructuring of IBP before dilution of Government stake in the company.They said that it was difficult for the company to face its shareholders andComptroller and Auditor General without knowing the marketing margins thatmade it difficult to finalise the marketing margins.

IBP, which recorded a turnover of Rs 5,670 crore for the year 1998-99 on anet profit of Rs 35.23 crore, has a market share of about 4.5 per cent.