ONGC-Oil consortium will buy out IOC stake, EGOM to decide today

At a time when finance ministry is pushing for every revenue source to bridge the fiscal deficit gap and is going full throttle to jack up finance from PSUs either in the form of disinvestment, special dividends, subsidy burden sharing and buyback, petroleum ministry has found out an alternative way for IOC disinvestment. Petroleum ministry has instructed Oil India and ONGC to make a consortium and buyout the IOC stake and give the money to the government. This proposal will now be discussed in EGOM meeting, which may take place today.  DSIJ on January 10 mindshare has pointed out that though IOC stake sale has been deferred owing to petroleum ministry’s strong opposition but finance ministry is in no mood to leave that issue and will again take up the matter next week in empowered group of ministers (EGOM) meeting.

Though finance ministry is again pushing for taking the stock market route for the disinvestment but petroleum ministry wants to do it in a cross holding route kind of thing where shares of IOC will be transferred to this consortium. “Finance ministry only wants money and they haven’t got any reservation about the manner in which it comes. We have suggested this option (buy out by ONGC and OIL consortium) and it will be discussed in the EGOM,” Vivek Rae, Petroleum Secretary told DSIJ. When contacted about this routed a senior Department of Disinvestment (DOD) official said; “Though this route doesn’t call for any kind of lock in period but we have consulted Sebi officials to clarify on this issue as in the past Sebi was reluctant to take this route due to cross holding by promoters companies.”

Also DOD is suggesting that a block deal route should be taken via stock exchanges so that long term capital benefit can be taken afterwards. But in that case stocks that are being transferred should be held for at least more than 12 months. Finance ministry also wants to give ample opportunities to other financial institutions like LIC to buy IOC stake but it depends on the petroleum ministry’s stand on the matter.

These things will be discussed today in the EGOM. When asked about this to Mr. R S Butola, he said; “Various Options are there and they will be discussed in the EGOM meeting and EGOM will have to take call on the manner in which transfer of stake will happen.” Petroleum ministry is pushing for buying of 10% stake in IOC via consortium and out of this 5-7% will be bought by Oil Indian and rest will go to ONGC.  This stand of ministry will again put strain on the finances of upstream companies but ministry is thinking that once valuation of IOC stock will improve, this holding will be sold in the market. Importantly government wants to dilute 10% stake in IOC to generate around Rs. 4800crore. IOC stock is currently trading at Rs. 210. In the past also government has gone for cross holding route buyout by oil companies in 90s and early 2000.