ONGC holds 13.77 and 4.86 percent stake in oil refiner IOC and gas utility GAIL India, respectively.
"We are India's largest oil and gas producer and the acquisition of...
(oil refinery) HPCL has extended our presence in the downstream industries. And so naturally, it now does not make sense for ONGC to hold stake in Indian Oil Corp (IOC). But, we will wait for the right price," an officil told PTI.
Analysts are of the opinion that ONGC may not offload its stake now, since it has a lot of cash to repay the loan, and may keep the stake for funding any future takeover project. "ONGC's balance sheet is strong enough to sustain the loan for a couple of years if they desire. It makes no sense to sell it now," said a Delhi-based analyst tracking the sector. "Moreover, they have already repaid a considerable amount of loan. So they will continue doing that without any problem," the analyst added.
ONGC has been using the surplus to repay the Rs 24,881 crore loan it has taken for funding stakes purchase in Hindustan Petroleum Corporation Ltd (HPCL) for Rs 36,915 crore. A third of the loan has already been pre-paid, the official said. ONGC had borrowed Rs 24,881 crore on a short-term loan to fund buying of the government's 51.11 percent stake in HPCL. The remaining came from its cash reserves. The official said the pace of repayment may slow down in the third and fourth quarters owing to outgo on taxes and dividend.
Initially, ONGC wanted to sell its stake in IOC and GAIL to fund the acquisition, but it has never found the right price to offload the shares. The company even held talks with Life Insurance Corporation of India (LIC) but the state-owned insurer insisted on buying them at 10% discount to the prevailing price, to which ONGC did not agree.
ONGC, the executives said, got over Rs 3,000 crore in dividend income from investments in IOC and GAIL in 2017-18 financial year. "This is a decent return on capital and can help me hold on to shares for long," he said.
ONGC's purchase of HPCL was its biggest acquisition and second buyout of 2017-18 after its Rs 7,738 crore acquisition of 80 percent stake in Gujarat State Petroleum Corp's KG basin gas block. HPCL added 23.8 million tonne of annual oil refining capacity to ONGC's portfolio, making it the third largest refiner in the country after IOC and Reliance Industries. ONGC already is the majority owner of Mangalore Refinery and Petrochemicals, which has a 15-million tonne refinery.
Analysts are sceptical whether ONGC will offload its stake now, especially since it has a lot of cash to repay the loan, and instead, may keep the stake for funding takeovers