Emerging Markets : Oil And Banking Giants Feel Urge To Merge


If the newly installed minister of petroleum has his way, then Indian industry will see the largest merger ever. The Indian oil industry’s functions, from exploration and production and refining through to marketing, are controlled or dominated by government-owned companies (though most are listed on the stock exchange). The proposal that has been in the air for the past couple of years and is now under the active consideration of the government is to have two sets of mergers. One will involve combining the E&P; company ONGC Ltd with refining and marketing companies Hindustan Petroleum and Bharat Petroleum. The second merger involves combining the country’s largest refining and distribution firm Indian Oil Corp. (IOC) with Oil India Ltd (OIL). The twin sets of mergers will create two oil giants with combined revenues of $33.8 billion and $26 billion respectively, instead of the five large companies in existence today, in addition to four smaller state-owned refining companies. The standalone refineries will be added to either of these combinations.

Two giant government-controlled financial institutions are also toying with the idea of a merger as well. The Industrial Development Bank of India (IDBI) and the Industrial Finance Corporation of India (IFCI) are contemplating a merger, largely to bail out the latter, which has been weighed down with bad loans, estimated at nearly one third of its assets. The government intends providing a bailout package of roughly $1 billion, thus cleaning up the balance sheet and reducing the burden on IDBI. In addition, the government will also transfer nearly $2 billion worth of bad loans from IDBI’s books into a separate asset restructuring company, making a healthier combined entity. IDBI is also considering a merger with IDBI Bank (100 branches in India), which will facilitate its conversion into a universal bank.

Aaron Chaze