State-owned Oil and Natural Gas Corp (ONGC) will not sell its stake in IOC and GAIL in the near future as it has used internal resources to repay close to a third of the Rs 248.81 billion loan it had taken to buy Hindustan Petroleum Corp Ltd (HPCL), people with direct knowledge of the matter said.
ONGC had in January received government approval to sell its 13.77 per cent stake in Indian Oil Corp (IOC) and 4.86 per cent state in gas utility GAIL India Ltd to help fund the Rs 369.15 billion acquisition of HPCL.
"IOC shares were trading at around Rs 195 in January and it is now at Rs 159 (Friday's closing). It doesn't make sense to sell the shares at such a big loss," a person with direct knowledge of the matter said.
At Friday's closing price of Rs 159.60, ONGC's shareholding in IOC would get it Rs 213.43 billion as against Rs 262.00 billion worth in January. At Friday's closing price of Rs 387.25, ONGC's shareholding in GAIL is worth Rs 42.44 billion.
"We are generating enough resources internally thanks to a rebound in oil prices. We used these to bring down the borrowing for HPCL acquisition to Rs 20,000-21,000 crore (Rs 200.00 billion- Rs 210.00 billion) in the first quarter and are repaying another Rs 3,000-4,000 crore (30 billion- 40 billion) in current quarter. Effectively, we have repaid Rs 7,800 crore (Rs 78 billion)," he said.
The person said the pace of repayment may slow down in the third and fourth quarters owing to outgo on taxes and dividend as also the fact that capital spending would peak by then.
Initially, ONGC considered selling IOC and GAIL stake to fund the acquisition but it has never found the right price to offload the shares, he said.
The short-term loan it availed had a provision to pre-pay without any penalty.
Sources said ONGC had held talks with Life Insurance Corp of India (LIC) for selling IOC and GAIL shares but the state-owned insurer insisted on buying them at 10 per cent discount to the prevailing price. So, ONGC has decided against the share sale.
ONGC's purchase of HPCL created India's first integrated oil company. This was ONGC's biggest acquisition and second buyout of 2017-18 after its Rs 77.38 billion acquisition of 80 per cent stake in Gujarat State Petroleum Corp's KG basin gas block.
HPCL added 23.8 million tonnes of annual oil refining capacity to ONGC's portfolio, making it the third-largest refiner in the country after IOC and Reliance Industries Ltd. ONGC already is majority owner of MRPL, which has a 15-million tonne refinery.