The Hindu : Oil companies keen on IPOs

Online edition of India's National Newspaper
Thursday, Jun 26, 2003

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Business

Oil companies keen on IPOs

By Sushma Ramachandran

NEW DELHI JUNE 25. Buoyed by their impressive performance in the last fiscal, the country's blue chip oil companies are keen to divest more Government equity through the public issue. With Maruti Udyog's initial public offer having been a resounding success, the oil companies' proposals are likely to be examined more seriously by the Union Petroleum and Disinvestment ministries as well as the Finance Ministry.

The Indian Oil Corporation (IOC) has already put in a formal proposal to disinvest its shareholding in the Oil and Natural Gas Corporation (ONGC), which had been made in a form of disinvestment about two years ago. As for the ONGC, which made a record Rs. 10,000 crore net profit in 2002-03, the company is confident that an IPO will have a resounding response from the market. It has thus begun sounding out the Petroleum Ministry for tapping the domestic market through a public issue.

Though the Disinvestment Ministry has emphasised that a strong strategic partner is important for the success of an IPO like in the case of Maruti, sources in the oil industry point out that these two Navaratna companies have their own strengths. The IOC, of course, misses no opportunity to point out that it is in the Fortune 500 list. As a retailer of motor spirit and diesel as well as LPG, it has high brand equity in the market. And the company is no doubt keen to cash in on its high profile position in the oil retailing sector before multinationals or private sector players such as Reliance make their presence felt in the market.

Similarly, the ONGC is well known as the largest oil producing and exploration company, though it may not have the same appeal for retail investors. Oil industry sources, however, are confident that in case these companies are allowed to go for IPOs in the domestic market, the response would probably be as good as that of MUL.

At the same time, divesting Government equity in these two blue chip companies may not be considered favourably immediately for several reasons. First, the strategic nature of the oil sector has come under scrutiny during the controversy over the relatively smaller oil refining companies, Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL). It was after considerable soul-searching that the Government was able to take a decision on strategic sale of one and the public issue route for the other company. It is therefore difficult to envisage easy clearance being given for dilution of Government equity in these two companies that have been deliberately kept out of the disinvestment process.

Second, the Disinvestment Ministry has prepared its own road map for the privatisation process. It is bound to be more keen to go ahead with companies such as National Aluminium Company (NALCO) and BPCL rather than allow the oil sector giants to enter the capital markets at this stage. Even the IOC Chairman, M. S. Ramachandran, conceded a press conference earlier this week that the timing of the issues had to be decided carefully by the Government to enable retail investors to plan investments. Despite these factors, IOC and ONGC, which have clearly benefited greatly from deregulation, are expected to use all their powers of persuasion to influence the Government in their favour. With their increasing financial muscle, it is conceivable the Government could consider allowing them to go to the domestic market to raise funds but for a lower level of divestment than is now being envisaged.

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