Eye on consolidation: Govt may end cross-holding in oil PSUs

The government may gradually end the cross-holding structure existing in the oil sector as it looks to further consolidate operations of public sector enterprises and go ahead with its privatisation plan by getting a fair valuation of assets.

Official sources said that all oil sector PSUs may be asked to exit from their investments made in equity shares of other State-owned entities. This could be done in phases, depending on the market conditions, so that the shares get maximum valuation.

The cross-holding structure among oil PSUs was built in the late 1990s as the government sold its shares in Oil India Ltd (OIL), Oil and Natural Gas Corporation (ONGC), Gas Authority of India Ltd (GAIL) and Indian Oil Corporation (IOC) in a bid to raise funds.

Consequently, while GAIL and IOC hold 7.84 and 2.45 per cent stake respectively in ONGC and OIL hold 14.20 and 5.16 per cent stake respectively in IOC. Also, IOC and ONGC hold 2.47 and 4.94 per cent stake respectively in GAIL India, and BPCL (2.47 per cent), HPCL (2.47 per cent) and IOC (4.93 per cent) together own partial equity in OIL.

Estimates suggest that if the government divests its stake by taking the entire proceeds from sale of shares cross-held by oil PSUs, it could mobilise upwards of Rs 40,000-Rs 50,000 crore. However, it is likely that companies may plough back the money raised through equity sale to the government by declaring a special dividend.

"The government wants to end cross-holding in the oil sector as its consolidation and privatisation roadmap would create two to three large integrated entities. This would create a situation where cross-holding could be seen as anti-competitive and aiding conflict of interest," said one of the source quoted above.

Analysts also believe that offloading listed investments could make sense even for strategic investors looking to buy into Bharat Petroleum Corporation Ltd (BPCL) as it would reduce the risk of any future government intervention.