The cross-ownership structure among oil PSUs was built in the late 1990s when the government sold its shares in Oil India Ltd (OIL), Oil and Natural Gas Corporation (ONGC), Gas Authority of India Ltd (GAIL) and Indian Oil Corporation (IOC) for the purpose of raising funds.
Therefore, while GAIL and IOC respectively hold 7.84% and 2.45% of the capital of ONGC and OIL respectively hold 14.20 and 5.16% of the capital of IOC. In addition, IOC and ONGC respectively hold 2.47 and 4.94 percent shares of GAIL India, and BPCL (2.47 percent), HPCL (2.47 percent) and IOC (4.93 percent) together hold a partial stake in OIL.
Estimates suggest that if the government sells its stake by taking all of the proceeds from the sale of shares held by the oil PSUs, it could raise over Rs 40,000 to Rs 50,000 crore. However, it is likely that companies will reinvest the money raised from the sale of shares to the government by declaring a special dividend.
âThe government wants to end cross-shareholdings in the oil sector, because its roadmap for consolidation and privatization would create two or three large integrated entities. This would create a situation in which cross-shareholdings could be viewed as anti-competitive and fostering conflicts of interest, “said one of the sources cited above.
Analysts also believe that offloading listed investments might make sense even for strategic investors looking to buy into Bharat Petroleum Corporation Ltd (BPCL) as it would reduce the risk of any future government intervention. None of the PSU oil companies now owns a stake in BPCL and only LIC owns a 5.66 percent stake in the privatization-related refiner, valued at the current share price of Rs 470.55 at 5,775 crore. of Rs.
Sources said that although the privatization plan of IOC, GAIL, ONGC, OIL has not yet been established, as part of the roadmap finalized by the government, it will keep the bare minimum. This would mean that merger privatization could also be considered for the remaining oil PSUs at a later stage. This is where the divestiture of cross ownership would come in handy.
Experts said that a listed investment is as good as the cash equivalent, can be sold before divestment, and the proceeds are paid out as a one-time special dividend.
Under the cross-shareholding structure, BPCL continues to hold a 2.47% stake worth approximately Rs 420 crore in OIL. To its advantage, BPCL has no cross ownership by other PSUs that could have created problems in its valuation and sale to a strategic investor. Likewise, HPCL also does not have a cross-ownership structure, one of the reasons its acquisition by ONGC last year went smoothly.
Analysts said “other income” as a percentage of pre-tax profits of oil marketing companies was between 15 and 30 percent in the prior year. And this high income level could impact the valuation of companies, as the markets typically give the holding company a 20-30% discount from the listed investment.
Sources said the Oil Ministry had previously told ONGC to pull out of its investments in oil refiner and distributor IOC and gas transport company GAIL India, while the other two would also sell all of their shares in the company. upstream company. However, this could not be verified independently.
“Every oil PSU should take a call when the time is right to offload holdings in others, as cross-investing pays dividends and exits should only be made at the right value and when market conditions are right. are stable. Hopefully this call could be exercised in the last quarter of the current fiscal year, “said a senior official at an oil company PSU.
It’s not that companies have made big gains from cross-shareholdings. In fact, with the volatility of the oil market, some investments have generated negative returns.
(Subhash Narayan can be contacted at [email protected])
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