The finance ministry is keen on selling stakes in Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation (IOC), but follow-on public offers (FPOs) in the two bluechip public sector units (PSUs) are unlikely, as unresolved issues are affecting valuations. Disinvestment Secretary Sunil Mitra last month wrote to his counterpart in the petroleum ministry, R S Pandey, seeking comments on “public offerings from the government’s shareholding” in ONGC and IOC. The petroleum ministry is of the view that raising funds from the capital market was not prudent till issues like fuel pricing and subsidies were resolved, which were affecting share prices of ONGC and IOC, sources in the know said.
IOC has been the most affected by the “ambiguous” fuel pricing and the uncertain compensation mechanism is reflecting in its share price of Rs 315.95 (by close of Friday's trade on the BSE) considered highly under-valued.
The government has not allowed IOC and other retailers, Bharat Petroleum and Hindustan Petroleum, to raise petrol, diesel, domestic LPG and kerosene prices in line with the cost, they have not been given the promised compensation.
The three retailers have not been issued the promised oil bonds or given cash to make up for the over Rs 20,000-crore loss they incurred on selling LPG and kerosene. ONGC is plagued by uncertainty on the net price it will realise on sale of crude oil, as the government asks it every now and then to make up for retailers’ losses. Besides, revision in natural gas prices has been long pending. Sources said in view of the opposition by the petroleum ministry, FPOs were unlikely.
Government currently owns 80.35 per cent in IOC and 74.14 per cent in ONGC. A follow-on public offer of up to 10 per cent each was under consideration. Mitra had on December 8 sought to know from Pandey if ONGC and IOC had any requirement to raise equity from the capital market to meet their capital expenditure needs. IOC favoured debt over equity to meet the capex, while ONGC had enough reserves to meet its requirement. “In case the two companies do not require to raise funds from the capital market, we may kindly be advised if public offerings from Government’s shareholding be considered,” Mitra wrote.
Mitra said the government’s disinvestment policy provided for selling its equity in Central Public Sector Enterprises (CPSEs) that have positive networth, no accumulated losses and that have recorded net profits in three preceding consecutive years.
Listed CPSEs that do not meet the mandatory requirement of 10 per cent public shareholding are to be made compliant and unlisted PSUs listed through public offerings out of the government shareholdings or issue of fresh shares or a combination of both.
Mitra wrote that an FPO of Engineers India Ltd, in which the government had 90.40 per cent stake, was in process, while the same for Oil India Ltd was not possible, as the company was only recently listed. He sought to know “the requirement of ONGC and IOC to raise equity from the capital market” to meet their capital expenditure needs. Both companies did not think it was the right time to go to the market, sources added.
