The Hindu Business Line : Oil cos: Cabinet nod for sale of cross-holding

THE Cabinet on Thursday allowed GAIL (India) Ltd, Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation (IOC) to sell their stakes in each other.

This is a technical requirement for the public sector oil companies that had purchased a part of each other's Government-held equity in 1998 to help bridge the fiscal deficit. As a result, the companies paid Rs 4,463 crore to the Central Government to buy each other's equity.

Since the cross-holding was undertaken through a Cabinet decision in 1998, on a procedural level, only a Cabinet decision could unlock it. Hence, this week the Cabinet took the decision to unlock the cross holdings and allow the companies to sell their stakes in each other. The decision to sell their equity to the public or institutional buyers vests with the companies, which will be coming up with formal proposals on the sale shortly.

In 1998, as part of the cross-holding, IOC purchased 9.62 per cent equity in ONGC, 4.8 per cent equity in GAIL. ONGC, meanwhile, purchased 9.11 per cent in IOC, 4.82 per cent in GAIL. GAIL, on the other hand, picked up 2.4 per cent in ONGC.

The proposed sale would benefit the companies and provide them with free resources. For instance, IOC plans to retire a part of its debt with the sale proceeds. Currently, the company has a debt of Rs 12,000 crore. "If allowed, we plan to sell off around half of our portfolio in ONGC and GAIL. This would amount to around Rs 5,000 crore. Since we have no immediate projects to fund, the monies would be utilised to reduce our debt liability," a senior IOC official said.

The Petroleum Ministry has estimated that the sale of the entire cross-holding could net the companies around Rs 17,500 crore. Of this, the capital gains would be in the region of Rs 12,800 crore since the original purchase of Government equity was transacted at Rs 4,463 crore. The Central Government would net 10 per cent of this or Rs 1,280 crore on account of capital gains tax.

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