IOC, Gail turn down ONGC buyback plan

Within days of Cabinet approving dissolution of cross-holding in oil companies, Oil and Natural Gas Corporation (ONGC) has proposed that the state-run firms buyback the shares they hold in other firms instead of selling the entire equity in market.

The proposal has not found favours with Indian Oil Corporation (IOC) and Gail (India) Ltd. They feel the purpose of dissolving the cross-holding was to increase the liquidity of publicly traded shares.

"Markets don't have an appetite of picking up 36 crore shares worth Rs 19,000 crore. The largest public issue so far was in 1995 when IDBI mopped up Rs 2850 crore. Considering oil stocks are much in demand, we could get double that amount but certainly not the value that is being talked about," a senior ONGC official said.

While IOC has a 9.62 per cent stake in ONGC and a 4.8 per cent holding in Gail, ONGC in turn has a 9.11 per cent stake in IOC and a 4.82 per cent holding in Gail. Gail has a 2.4 per cent stake in ONGC. The three stand to gain Rs 19,141 crore at current prices if all these stake is sold in market.

ONGC has suggested to the petroleum ministry the companies buyback shares to the extent that they are revenue neutral""that is to say ONGC will buyback its shares from IOC and Gail to the extent of the value it gets in return for selling its holding in the two.

This is because at current price, one ONGC share will fetch Rs 748 while IOC share is being traded at Rs 433. Gail scrip is priced at Rs 210.15.

"The remaining shares (of ONGC) can be sold to the public in phases," the official said.

Rejecting the ONGC proposal, a senior IOC official said the company would prefer going to domestic and overseas market in tranches.

"We can sell our 3 per cent to 4 per cent stake in ONGC or the entire holding in Gail this fiscal without any problem. The remaining stake in ONGC can be sold in domestic and overseas market in the next fiscal."

A Gail official said: "...buyback of shares will not increase liquidity of traded shares, which is what the oil companies had reasoned when they petitioned the government for being allowed to dissolve the cross-holdings."

Officials of both IOC and gail insisted that no decision on share sales has been taken and the sale modalities will be finalised after discussions with the petroleum ministry.

ONGC has proposed to buyback a part of the 13.7 crore shares held by IOC and 3.42 crore shares held by gail in it. Considering the december 19 share close price of ONGC scrip (Rs 748) on the bombay stock exchange, ONGC will buy 6.16 crore shares from IOC and 1.14 crore shares from gail.

The outgo on buyback of these is equal to rs 4609 crore IOC will pay ONGC for the 10.6 crore shares (at Rs 433 a share) and Rs 858 crore gail will pay it for the 4.08 crore shares (at Rs 210.15 a share) held by it.

ONGC will sell the remaining shares it holds in IOC and gail in the market while IOC will sell its 4.08 crore shares in gail in the market.