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Indian Oil – Bongaigaon: Arbitrage Opportunity

May 6, 2008

We will never recommend to Invest in PSU Refinery / Oil Marketing Stocks until the Government supports FREE pricing mechanism, of course control cartelisation like the Steel companies in India are currently resorting to. However, if you are holding Bongaigaon Refinery & Petrochemicals Ltd, which will be merged with Indian Oil Corporation, here is an arbitrage opportunity.

BRPL Share Price(Rs/share) 64
Merger Ratio 37:04
Implied Share Price for IOCL( Rs/share) 592
Current IOC’s share Price( Rs/share) 481
Implied Premium/ (Discount) (%) 23

IOCL’s proposed merger with BRPL has received approval from their respective
shareholders and secured and unsecured creditors. The companies have sought approval from Ministry of Company Affairs (equivalent to the High Court approval) for the scheme of amalgamation. The entire process is likely to take another 3 months.

Investors who are in profit and are willing to exit must do so and seek solace in other energy companies such as Reliance Petroleum upon correction.

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