The merger of Chennai Petroleum Corporation (CPCL) with its parent Indian Oil Corporation (IOC) seems inevitable given the current global volatility in the energy market.
The merger of Chennai Petroleum Corporation (CPCL) with its parent Indian Oil Corporation (IOC) seems inevitable given the current global volatility in the energy market. IOC chairman B Ashok said, “It does not make sense a standalone company can survive and withstand the cost of operations due to various reasons and the best bet would be to merge with the parent.”
According to IOC chairman, they have been discussing the merger process for sometime now with the other stakeholder – Naftiran Intertrade (NICL), an arm of National Iranian Oil Company (NIOC). IOC holds close to 52% stake in CPCL while NICL has 15.4%. NICL is the founder promoter of CPCL way back in 60s. The FIIs are holding less than 5% and the remaining with the other shareholders, including common public.
Explaining the rationale behind the merger aspect, Ashok said: “There are number of factors, including costs involved in operational, procurement, taxation, capacity expansion, new products introduction and crude mixation. This apart from external factors such as global volatility in crude prices, natural disasters such as cyclone, flooding where it does not makes sense for a standalone company to withstand and overcome all these problems. In fact, till two years ago, Chennai Petroleum was running under loss. It became profitable after turnaround with a lot of aggressive measures.” CPCL is in the cusp of expanding its capacity at Narimanam in Nagapattinam district of Tamil Nadu from 1 million tonne to 9 million tonne over the next few years with an estimated investment of Rs 27,000 crore. For this an equity infusion of Rs 9,000 crore is required.
“If our foreign partner is willing to bring in necessary equity we will welcome it. However, it remain to be seen how things unfold. A standalone refinery cannot sustain its operations in the current volatile scenario and the merger is inevitable,” Ashok reiterated. It may be recalled that CPCL had to undergo a rough patch in recent years and even it was referred to BIFR in 2014-15 owing to erosion in its net-worth by more than 50%. The company saw a turnaround over the last two years. The company’s networth as on March 31, 2017, stood at `3,314 crore.