The Telegraph
Since 1st March, 1999
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Oil stake churn heads for market
- ONGC, Indian Oil, Gail may be allowed to offload cross-holdings on bourses

New Delhi, Aug. 12: The petroleum ministry is likely to permit Indian Oil Corporation, ONGC and Gail to offload in the secondary market the equity they hold in each other.

The issue of disentangling oil companies’ cross-holdings came up for discussion at a meeting held today between petroleum minister Mani Shankar Aiyar and the chiefs of the three oil companies.

Indian Oil (IOC) has a 9.5 per cent stake in ONGC and a 5 per cent share in Gail, while ONGC has a 9 per cent share in IOC and a 5 per cent holding in Gail. Similarly, Gail holds a 2.5 per cent stake in ONGC and 5 per cent in IOC.

Gail and IOC have been keen to sell their cross-holdings in the open market in order to raise funds to finance their expansion plans. The value of both Gail and ONGC shares have shot up since IOC bought them three years ago.

A senior official told The Telegraph that the IOC equity in Gail and ONGC is worth Rs 5,000 crore. The ONGC stock, which was trading around Rs 200 per share when IOC bought the stake, closed at Rs 676.70 on Thursday.

However, the price of the IOC share has not made such huge gains and was quoted at Rs 385.40 at close today. Gail closed at Rs 181.75.

Since the government also had plans to offload ONGC and Gail shares as part of the divestment exercise through an initial public offering, they were asked to hold on to their cross-holdings. There were fears that offloading these shares could hit the IPO due to an excessive supply.

However, with the ONGC and Gail IPOs having gone off successfully and both the scrips settling at a high price level, the current thinking appears to be in favour of allowing these companies to sell their shares.

A senior official said ONGC does not have any “immediate'' plans to sell its cross-holdings in Gail and IOC as it is a cash-rich company that is financing its investments through internal funds.

The Vajpayee government had asked these companies to purchase shares in each other about three years ago in order to raise resources to check the runaway fiscal deficit. The government had raised a handsome Rs 10,000 crore at the time through the equity swap.

Ram Naik had also used this argument for an alternative divestment route in his fight against Arun Shourie who wanted to sell the blue-chip oil companies along with their management control to private players.

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