The domestic issue will open on January 19, and close on January 31. The board finalised the information memorandum and an arranger agreement for financial institutions (including foreign institutional investors) expected to pick up a stake in the company.

The total returns to the Government coffers from the domestic issue and the equity swap approved by the Union cabinet earlier is expected to be about Rs 1,200 crore, according to sources. The domestic offering of 10 per cent through book-building of the Government holding in Gail to institutional investors should mop up Rs 600 crore.

The 2.5 per cent of the Oil & Natural Gas Corporation (ONGC) shares that Gail proposes to buy as part of the equity swap of Government shares among oilcompanies should cost between Rs 600 crore and Rs 700 crore, said Gail chairman and managing director CR Prasad. The 10 per cent of Gail equity that ONGC proposes to buy in return will cost nearly as much.

The price estimates are based on the prevailing market rates of the stocks. A final decision on the price of the equity that the six chosen public-sector undertakings (PSUs) will either buy back from the Centre or swap among themselves will be ultimately decided by a group of ministers.

Assuming that the Centre would like to maximise its returns from the disinvestment exercise, the going market rate of the blue chips is being considered the best possible indicator of the price of the equity. The Gail stocks are at about Rs 78 a share on Dalal Street, while ONGC shares are trading at roughly Rs 176 per share.

The two disinvestment exercises will bring down the Government equity holding in Gail to 76.4 per cent, from 96.4 per cent. The company's pending global depository receipts (GDR) issue shouldhelp offload nearly 15 per cent more of the remaining Government stake in Gail.

The issue, which was put off because of gloomy market conditions, is expected to hit the road around June, or as soon as the GDR market picks up, said Gail's director, finance, JK Jain. He said the company planned to fund the 2.5 per cent equity acquisition in ONGC, partly from its free reserves and partly from short-term domestic borrowings.

Jain pointed out that Gail had a net worth of Rs 3,300 crore. The company has an equity capital of Rs 845 crore, and a debt to equity ratio of 0.43:1.

Prasad emphasised that the more than the Rs 600 crore which Gail will have to spend (and partly borrow for) to acquire a 2.5 per cent stake in ONGC will not upset its ambitious investment plans. The gas-transmission company has diversified into producing liquefied petroleum gas (LPG), and is half-way through in commissioning a major petrochemical project in Uttar Pradesh.

``We have just completed projects worth Rs 8,000 crore,'' Prasadsaid, adding that the equity swap would result in a much-desired synergy between the two upstream oil and gas companies. ONGC is the country's largest producer of natural gas, and Gail monopolises the transmission of gas through its pipeline network.