Indian Organic To Hive Off Chemicals Unit

Indian Organic Chemicals Ltd (IOCL) has decided to spin off its chemicals division into a wholly owned subsidiary.

The move is in line with the company's decision to focus on new areas of chemicals and gradually phase out the old chemicals business. The spinoff will also result in a stronger balance sheet as the as the division has been posting losses. The company has convened an extraordinary general meeting on December 18, 2001 to get shareholder nod for the move.

"The primary reason for the demerger is to give a new thrust to the chemicals business by focusing on knowledge based activities. The secondary reason is to strengthen the balance sheet," said a senior company executive.

 

The chemicals division is being spun off at consideration of Rs 45 crore comprising Rs 25 crore equity and Rs 20 crore debt. The division had been focusing on the manufacture of alcohol based chemicals like acetic acid, glycol and ethyl acetone. The market is now flooded with substitutes and imports have also become cheaper with the lowering of tariff walls. This has resulted in the business becoming unviable.

The company plans to utilise the assets of the chemical business for contract manufacturing and research for multinationals, custom synthesis and toll manufacture. The company has already entered into a contract with Ciba Specialty Chemicals for contract manufacturing.

Earlier, the company had pared it staff by 279 people through a VRS. In another attempt to reduce costs and tap synergies the company has decided to merge its wholly-owned subsidiary Futura Polymers with itself. This company manufactures PET resins. The company was originally a joint venture with Pepsi. Later, Pepsi exited the joint venture as a result of its global policy to focus on the foods and beverages segment.