Indian Oil Corporation has approved investment of Rs 150 crore (Rs 1.5 billion) in Haldia Petrochemical Ltd in its board meeting on Monday, clearing the way for its proposed initial public offer that may hit the market in January 2005.

The investment will give IOC a 7.5 per cent stake in HPL, which is the second largest producer of polymer in the country, sources close to the development told Business Standard.

Monday's development marks the culmination of years of pursuit by the existing promoters of HPL, especially government of West Bengal, to induct a new partner in HPL.

As part of the debt restructuring plan worked out by a consortium of lenders, HPL required to put in Rs 600 crore (Rs 6 billion) fresh equity in the company.

The IPO and the investment of IOC are steps in that direction.

The HPL promoters were waiting for a formal approval from IOC before filing the draft prospectus with the market regulator Securities and Exchanges Board of India.

After Sebi gives the green signal, HPL will issue 30 million shares to raise upwards of Rs 300 crore (Rs 3 billion) to retire high cost debt and reduce its interest burden.

"As a promoter of the company, we are happy at today's development. IOC will now be fourth promoter along with GoWB, The Chatterjee Group and Tata Sons," Sabyasachi Sen, principal secretary, commerce and industries, GoWB, said.

IOC's entry into HPL is also been seen as a step in the forward integration process for IOC, which is the largest retailer of petroleum products and refiner of crude oil but has no presence in the allied petrochemical business. IOC would have a director on the board of HPL, Sen informed.

IOC may help HPL if it plans any expansion of manufacturing capacity.

The state of West Bengal may gain from the marriage as IOC may put up more downstream units at Haldia, a port town, which already has an IOC refinery.

IOC had promised to set up a chemical park at Haldia.