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Friday, May 24, 2002

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IOC to divest stake in ONGC, GAIL -- Over Rs 2,500-cr gain seen

Raghuvir Srinivasan


INDIAN Oil Corporation (IOC) plans to divest its holdings in Oil and Natural Gas Corporation (ONGC) and Gas Authority of India (GAIL). If it is made at current market prices, the divestment will fetch IOC a profit of a little over Rs 2,500 crore, boosting its bottom line for the current fiscal 2002-03 quite significantly.

The IOC board of directors, which met recently, decided, in principle, to sell its holdings in the two companies. The modus operandi of the divestment itself is yet to be decided.

It may be recalled that in 1999, IOC acquired 13.7 crore shares of ONGC and 4.08 crore shares of GAIL from the Government representing 9.6 per cent and 4.8 per cent of their respective equity capitals. This was part of the equity swap among the three oil companies arranged by the Government to boost its proceeds from the disinvestment programme.

That acquisition, in retrospect, is proving to be a profitable proposition, at least for IOC. The total acquisition cost for IOC then was Rs 2,470 crore. At the current market price of Rs 343.25 for the ONGC stock and Rs 75.10 for GAIL, IOC could raise a little over Rs 5,000 crore from the divestment.

The profit from the sale will add significantly to IOC's bottom line, which has stayed depressed in recent times. During 2000-01, IOC had a post-tax profit of Rs 2,720 crore, almost the same as the expected profit from the ONGC and GAIL divestments. For the first nine months of 2001-02, IOC reported a net profit of Rs 1,587.22 crore.

Besides, the total proceeds of over Rs 5,000 crore can help in reducing the borrowings of the company, which was reported to be around Rs 18,000 crore as of March 31, 2002.

Theoretically, IOC has the option to choose from either of the two alternatives for divesting its holdings in ONGC and GAIL. The first one, obviously, is selling the shares in small tranches in the stock market. Alternatively, it can sell them in private placements to institutional investors which will fetch a good price. The company will be making a decision soon on the method to be adopted. Incidentally, it would be interesting to watch ONGC's moves as it holds a similar percentage of IOC's equity.

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