Mafatlal Industries, Shell, Montell and Nocil on Wednesday signed a memorandum of understanding for the new project with a capacity of 450,000 tonnes per annum.

The restructuring plan will begin with the de-merger of Nocil into three separate companies--petrochemicals, rubber chemicals and plastics. The assets and liabilities of Nocil will pass on to the de-merged entities.

Montell will pick up a 49 per cent in the new petrochemicals company through a preferential allotment for a price not less than Rs 29 per share. The exact share price will be worked out after deliberations with financial institutions and shareholders. An extraordinarygeneral meeting of Nocil will be called on October 31 to propose an enabling resolution to this effect.

Announcing the restructuring proposals in Mumbai on Wednesday, Mafatlal Industries chairman Arvind Mafatlal said the new petrochemical business will implement Project Lotus, which will be completed by 2003.

On being asked about the approvals, deputy chairman Hrishikesh Mafatlal said: "We now have to approach the FIs and banks for the necessary approvals. We are confident that they would approve of the arrangements that are worked out by us.''

Montell will invest over $1.2 billion in the new project. The expansion and modernisation programme will be headed by Shell representative Gean Michell Couteau.

After the de-merger, shareholders will get roughly 70 per cent of petrochemicals, 16 per cent of rubber chemicals and 14 per cent of residual companies.

Nocil's share capital of Rs 122.60 crore will thus be split into three: Rs 85.82 crore in Nocil Petrochemicals, Rs 19.6 crore in the Rubber Chemicalscompany and Rs 17.16 crore in the residual business.

Mafatlal told shareholders that the company is giving shape to deriving a scheme for the shareholders which will take care of the odd lots after the de-merger.

On being asked whether Shell proposes to increase its equity at a later stage Vikram Mehta chairman of the Shell group of companies in India said that his company's approach to equity varies from country to country. Shell will achieve its aspirations with 49 per cent in the venture, he added.

``We have decided to team up with Nocil after realising that Indian market has an enormous growth potential and there is scope for a new cracker project,'' he added.

While explaining the rationale behind the demerger, Arvind Mafatlal said:

"The preferential allotment of shares had to be undertaken so that there is an influx of capital into the company. Since our survival itself was at risk we had to take these measures. The efforts will only see that the situation will not get out of hand.''

Nocil'sperformance has been affected and so has been the subsequent dividend declared due to the worst kind of downturn in the industry.

The entire plan will help Mafatlal Industries to exit from non-core areas and concentrate on on the core business, textiles. Plastics division would also remain with the group until a final decision is arrived at.

Arvind Mafatlal assured the shareholders ``with the formation of the new company, the company would be going into safer hands.''

The Poly Vinyl Chloride(PVC) division at the existing facility in Thane which contributes about Rs 210 crores to the total turnover of the petrochemicals unit will be phased out.

Project Lotus will be a mega poly olefins company integrated with a world scale naphtha cracker. The new capacity of the petrochemicals complex is ethylene (4.5 lakh tpa), propylene (2.5 lakh tpa), polypropylene (2.10 lakh tpa), polyethylene (4.50 lakh tpa), benzene/toluene/xylene (2.10 lakh tpa), butene (0.25 lakh tpa).

Arvind Mafatlal along with Shellrepresentatives on Tuesday met chief minister Manohar Joshi to apprise him of the signing of the MoU.

Prior to the announcement of the demerger plan, the Nocil scrip breached the upper band of the price filter at Rs 35.80 with a huge volume of over 10 lakh shares reported on the local bourses. At the circuit price an outstanding volume of 11,400 shares was reported on the NSE. On the BSE the stock closed at Rs 35.55 registering a net gain of 7.24 per cent.