The Telegraph
Since 1st March, 1999
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Oil equity sale to be in phases

New Delhi, Nov. 12: The ministry of petroleum and natural gas has drawn up plans to sell a 20 per cent stake in Indian Oil Corporation (IOC) and 5 per cent stake in ONGC in the open market, and offload some equity in Gail (India) Ltd as well.

Sources said that the timing of this sale will be phased out vis-à-vis the government’s plan to offload the cross-holding of equity in these companies as well. This includes a 9.6 per cent stake in ONGC held by IOC, a 10 per cent stake that ONGC holds in IOC, a 5 per cent share in ONGC held by Gail and a 10 per cent stake in Gail held by IOC and ONGC. The share swap amongst these companies had taken place in the late nineties in order to raise finances for reining in the runaway budget deficit at the time.

Both these proposals relating to the sale of equity in these companies are expected to be forwarded for cabinet approval soon.

The government currently owns an over 80 per cent stake in both IOC and ONGC and a 67 per cent stake in Gail. Most of the remaining stake is cross-held amongst these companies.

The petroleum ministry wants to phase out the sale in such a manner so that the shares of a particular company do not flood the stock market at any point in time. “This would lead to a disastrous fall in the scrip prices,” said a senior official.

The ministry’s proposal for selling IOC, ONGC and Gail shares in the open market fits into its broader definition of disinvestment to raise resources for the government. This varies from the more narrow definition of the department of disinvestment (DoD), which views disinvestment in terms of handing over management control of the oil firms to the private sector.

DoD had floated the idea of hiving off the marketing division of IOC and sell it to a private a company after the Supreme Court ruled that Parliament approval would have to be taken to sell HPCL and BPCL. The petroleum ministry has opposed the move saying this would result in the collapse of IOC with nine refineries and no outlet to sell products. Killing a company that has earned a net profit of over Rs 6,000 crore during the current fiscal would have disastrous consequences for the hydrocarbon sector. IOC has a turnover of over Rs 100,000 crore.

Ministry officials point out that the objective of the disinvestment exercise is to raise finances for the government and the sale of equity to the general public can achieve this purpose. Besides, these companies have been contributing huge dividends to the government.

The government expects to raise Rs 14,000 crore from the stock market through the sale of these cross-holdings. However, the market price of these shares could fall drastically if a large quantity of share is offloaded at once and the target could go awry. In fact, ONGC had initially objected to Gail’s move to sell its 2.5 per cent stake in the open market on the ground that this sudden one-time offloading of shares would depress the stock price and erode its market cap.

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