New Delhi: The central cabinet has approved the petroleum ministry's proposal to allow ONGC, IOC and GAIL to offload their cross-holding in each other. This was announced by finance minister P Chidambaram after meeting of the cabinet committee on economic affairs (CCEA).
Chidambaram said that as the three companies have begun competing with each other because of forward and backward integration, the justification for cross-holdings was no longer valid. Accordingly, the request the three state-owned companies to be allowed to offload their cross-holdings from each other had been approved by the CCEA.
The three companies had conveyed to their ministry that the equity stakes were of no strategic value and the money could be better utilised for funding their investment plans.
The money raised by the companies through this offloading of cross holding would be used by them to fund primarily their exploration and production activities. "The companies will have the option of either swapping the equity or selling it in the market. All this will depend on their need for funds," he said.
However, Chidambaram added that "this should not be construed as disinvestment". He said that the companies could offload their holdings in each other in stages depending on their need for funds. If they want to offload their stake in the market they will come to us," the FM added.
The minister said that besides improvement in the financial position of these companies, they are likely to lead to higher dividends and revenues to the central exchequer.
"Now IOC, ONGC and GAIL can utilise the proceeds to fund their capital expenditure programmes approved under the 10th plan," he said.
Based on yesterday's closing prices, the three oil PSUs may be able to raise Rs24,827 crore by selling their cross-holdings. IOC's 9.61-per cent stake in ONGC is valued at Rs13,982 crore based on the latter's share price, while GAIL's 2.4-per cent stake in it is worth Rs3,495 crore. IOC and ONGC would realise Rs 1,046 crore each by selling their 4.83 per cent stake in GAIL. ONGC could earn another Rs5,258.25 crore by selling its 9.11 per cent in Indian Oil.