about 2 years ago
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By Ruma Dubey


The Govt with great pride, in the Budget announced that its divestment target for FY18, which was pegged at Rs.72,000 crore would not only be met but might even go to a record high of Rs.1 lakh crore. The first time in 14 years that such a feat is accomplished!

This is good news but the Rs.1 lakh crore is possible mainly because of the Rs.37,000 crore which has come into the kitty due to the ONGC-HPCL deal.

For FY19, the divestment target is pegged at Rs.80,000 crore. Once again, there is a deal which could help it meet or even surpass the target – Indian Oil Corporation (IOC) and Bharat Petroleum or BPCL taking 27% each in GAIL (India). The buyout of the 54% stake of Govt by two other Govt-owned companies will indirectly add around Rs.40,000 crore to the divestment kitty. So you see, by hook or crook, the Govt will meet and even exceed its target.

What is irking is that in this bid to meet targets and set records, it is maiming PSUs which are doing well, burdening them with the task of carrying more debt, diverting cash which could otherwise have been used for growth.

Take the case of the ONGC-HPCL deal. This was very good for ONGC, at least on the face of it because it will become a fully integrated oil company – right from exploring crude oil to marketing; upstream and downstream, all rolled into one.

But the HPCL shareholders most certainly got short changed. The exemption from the open offer meant that minority shareholders were left with no exit route; actually it meant they had no say whatsoever in this deal.

What irks is the control of the Govt. This all-cash deal to buyout the HPCL stake was done at the behest of the Center.  It is not that ONGC was so flush with funds that it could buy this stake from internal accruals. The Chairman of the company had made it very clear that ONGC would have to take on more debt to fund this buy. So the question is why? When the buyout could have been done through share swaps or through an all stock deal, why this need to do all in cash, putting stress on ONGC’s balance sheet?

And now there is talk of the IOC,BPCL-GAIL deal. This one makes no sense whatsoever. At least in the previous one, ONGC gained. Here, GAIL will continue to be owned by Govt owned companies – that’s it – from a centralized shareholding, it will now be held by two other PSUs. The 27% stake means that GAL does not become the subsidiary of any single company – it is mere transfer of ownership while control remains the same. And it goes to become just a “portfolio stock” in the books of IOC and BPCL.

Once again, this deal to meet the divestment target, will burden IOC and BPCL with more debt. The GAIL stake of 54% is valued at around Rs.40,000 crore. Both, IOC and BPCL do not have enough cash to buy – as at 30th Sept 2017, BPCL’s cash kitty was at Rs.9500 crore and that of IOC at Rs.7400 crore. This means, together, they are short of Rs.23,000 crore.  This Rs.23,000 crore is before we take into consideration the hefty dividends paid out.

IOC and BPCL can also raise funds by selling their stake in various companies it holds – other portfolio stocks like ONGC, Chennai Petroleum, Petronet LNG, Oil India and Lanka IOC. But it is unlikely that either of them will sell any of their stakes.

Thus to acquire a portfolio stock, both companies will take on debt. Yes, they are strong and very well leveraged and can afford to take on more debt but the question is why and whether it is worth it?

If this deal goes through, the Govt would have struck a gold mine – it will look at other cross holdings where it can ‘force’ companies to sell stake and earn cash.

This again brings to mind the lack of autonomy which PSUs have, making us wonder why we look at PSUs at all when they are all nothing but mulch cows and bailouts for the Govt.

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