Friday, January 17, 2014

ONGC, OIL to bail out govt on IOC disinvestment at the cost of their balance sheet

PUBLIC sector oil majors Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) are all set to bail out the government on disinvestment in Indian Oil Corporation (IOC) by acquiring 10 percent stake by next week. Experts, however, fear that this will have a negative impact on the...
balance sheets of the two PSUs. This will also impact their capex plans this fiscal.
ONGC already holds 8.77 per cent stake in IOC. “This is not a strategic buy... About five percent stake in IOC would cost us about Rs 2,200 crore, without any lock-in period. Therefore, this would not have any impact on our capital expenditure plans,” said a top official of ONGC. “After the stake buy, we will be left with around Rs 2,800 crore of reserves for the next financial year. We have a capex plan of Rs 36,000 crore for the next financial year. Of this, internal generation is expected to be about Rs 32,000 crore, which means the deficit may be about Rs 4,000 crore,” said the official.
Most PSUs keep cash reserve for investing in future projects as environment clearances are likely to get green signal from the government in near future. But in the process of giving additional dividends to the Centre they also lose out a substantial portion of their cash and in the process their capex plans get affected. Thus, oil major ONGC and its overseas arm OVL have many projects to finance in the pipeline. So by buying out stake in IOC, the PSUs will be running short of cash which will be reflected in their balance sheet at the end of the year. Moreover, both ONGC and Indian Oil are reeling under the subsidy burden. Their domestic production has also been disrupted and they are in need of funds to acquire assets. Till the first half of the current fiscal, ONGC has net cash of Rs 19,500 crore and Oil India Rs 11,600 crore. An empowered group of ministers (EGoM) headed by finance minister P Chidambaram approved the sale of 10 percent government stake in IOC to the upstream majors to raise Rs 4,800-5,000 crore. The sale of 242.7 million shares in the company was approved, though it was not decided how much stake each company would acquire.
The government holds 78.92 percent in IOC. Though divestment in the company was planned on January 9, 2013, it was deferred due to a fall in share prices. The finance ministry had pushed the move to meet its disinvestment target of Rs 40,000 crore for this financial year. Early this month, the EGoM dropped the plan to go to the market.

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