Latest oil sector `divestment' disappoints investors again

Latest oil sector `divestment' disappoints investors again
George Mathew

MUMBAI, MAR 26: The financial jugglery of the government to meet the disinvestment plans seems to have have disappointed the stock markets once again. The government move to sell the stakes in three stand-alone refineries to big oil companies at a steep price without an open offer to other shareholders has upset the calculations of investors.

Share prices of public sector standalone refineries -- Bongaigaon Refineries, Chennai Petroleum and Kochi Refineries -- came under selling pressure even as the BSE Sensex remained steady on Monday. "The government's move to exempt the new parents of these units from making an open offer contributed to the downslide in the prices," said an analyst. This is the second time in the last three years that the so-called disinvestment in the oil sector has resulted into erosion of wealth for investors. The market capitalisation of major oil companies like Indian Oil and ONGC had fallen steeply (by over Rs 20,000 crore) two years ago when the government sold part of its stake among oil companies to meet the disinvestment target.

On Monday, the share price of Bongaigaon Refineries was down 19 per cent to Rs 7.50, Chennai Petroleum down 4 per cent to Rs 32.05 and Kochi Refineries down 3 per cent to Rs 48.50 following sustained selling pressure. These stocks were in the limelight last week following the Centre's decision to sell its equity in standalone refineries like Kochi Refineries (KRL) to Bharat Petroleum, Chennai Petroleum (CRL) and Bongaigaon Refineries (BRPL) stakes to Indian Oil Corporation (IOC).

Said PK Srivastava, an angry investor, "I'm worried on two counts. The government sold its stake in three refineries at double the market prices. On top of this, the government has told BPCL and IOC not to make any open offers. This is violation of the existing norms." Normally, when a promoter sells his stake in a company to another party, the acquirer will have to make an open offer to buy at least 20 per cent of the equity held by the remaining shareholders at the same price.

However, here the government sold its 52.48 per cent stake in CRL at Rs 65.92 per share and 74.46 per cent stake in BRPL at Rs 10 per share to Indian Oil and a 55.04 per cent stake in Kochi Refineris at Rs 86.85 to Bharat Petroleum. This is almost 80 to 100 per cent premium over the current market prices of these companies. The question being raised by investors is: Why are IOC and BPCL not making open offers at the same price to other shareholders?

When the CRL share was hovering around Rs 30-32, the government sold the stake at nearly 100 per cent premium at Rs Rs 65.92. In fact, KRL had gained 15.83 per cent and CRL 19.07 per cent last week amidst hopes that Indian Oil and Bharat Petroleum would come out with open offers to buy shares from other shareholders. "It's true that the new owners (IOC and BPCL) are also under the government control but direct ownership is changing hands in these cases. Other shareholders should have been given an option to exit at the same price through open offers," said another investor.

IOC and BPCL are also listed entities. "These companies can come on the divestment block later... if not today. If the government sells its majority stake in IOC and BPCL, the acquirer will also control CRL, KRL and BRPL. What the government has done now is not fair," fund managers said. One reason could be that after asking oil majors to pick up these stand-alone refineries at high prices, the government did not want to put further financial pressure on IOC and BPCL.

Investors are also intrigued over the valuation of these refinery shares. The government's stakes in these stand-alone refineries were transferred to the new parents on March 24, 2001 to meet the current year's disninvestment target (which has now been scaled down to Rs 2,500 crore from Rs 10,000 crore). The government raised Rs 1,320 crore from oil companies through this year-end exercise or financial jugglery in the government books.