Institutional sources told The Financial Express that the first round ofdiscussions between both the parties has been successfully concludedrecently. If the deal takes place, RIL's PFY capacity will go up to 3,70,300tonnes per annum which is nearly 40 per cent of the total market capacity.Industry sources said that initially the agreement will be for a polyesterconversion arrangement with an understanding for a takeover at the secondstage.

DCL Polyester executive director PVG Raju denied the development saying thecompany was not in any form of negotiations with Reliance Industries.Company chairman and managing director MP Raju was not available forcomments, while a RIL spokesperson said the company does not comment onspeculations.

Rumours of a probable takeover has perked up DCL's share price. The scriptouched Rs 9.70 in the last week of November on the Bombay Stock Exchange,up by around Rs 6 from its position in October. The scrip, however, moveddown to Rs 7 on Wednesday at the close of trading.

The negotiations have begun at a time when the polyester industry is keepingits fingers crossed on the next takeover target of RIL after it acquiredRaymond Synthetics. RIL managing director Anil Ambani recently stated thatthe company will double its polyester capacity over three years -- partlythrough acquisitions. This would enable it to become one of the top threeplayers in the world having the lowest cost of production.

A group of senior executives from financial institutions recently visitedDCL's corporate office in Hyderabad as part of an initiative to monitor sickpolyester companies. The institutions came to the rescue of the ailingcompany early this year by working out a package to restructure itsliabilities through subscription of non-convertible debentures of Rs 39.64crore. The debentures are expected to be redeemed at a premium from October2000. The recast plan was essentially focussed on deferring the liabilitywith no waiver involved.

DCL Polyester faced a rough patch in 1996-97 after the industry was hit byrecession and consequent oversupply in the polyester sector. Rising fibreintermediate prices deteriorated its position further leading to a cash loss.INSIGHT :
Move makes sense
Given the fragmented nature of the polyester industry, it was expected thatconsolidation will take place. Reliance Industries has been pro-active insuch takeovers. It makes sense for Reliance to acquire DCL specially at atime when the company is in poor financial health. Reliance will not onlyget a ready client for its raw materials PTA and MEG, but it will have oneplayer less to take care of.

-- Shishir Asthana