The government is planning to withdraw two of its nominees on the board of Oil and Natural Gas Corporation (ONGC) in order to meet Sebi?s norm on reserving half of the directorships on board for independent directors before the hydrocarbon giant’s follow on public offer early next fiscal.
Having government nominees on the board enabled ONGC?s board so far to not approach the government separately for the majority shareholder’s views on decisions.
The recall of government nominees could cost the company this liberty that comes with the Navratna status. Navratna status confers autonomy on the board to clear investments in own projects and of up to R1,000 crore spending in a joint venture. Sources told FE that the proposal to withdraw government nominees came from the department of disinvestment and that it could be a temporary arrangement. Besides, ONGC is not planning any mega investments in the near future, for which it would have to separately seek government permission. If it does, the promoter can give its views separately without any hassle, explained a person privy to the development. The government is planning to mobilise R11,500 crore from a 5% share sale in the company in April. The government originally planned the share sale in 2010-11 fiscal, but as the auction of telecom spectrum boosted revenues this fiscal, it shifted the offer to the next.
Sebi requires a listed company to fill half of its board with independent directors, if the board chairman is executive. For a board with non-executive chairman, one third independent directorships would be sufficient. The idea is to protect the interests of minority shareholders irrespective of whether it is a public or private sector company.
Without the two government nominees from the ministry of finance and the ministry of petroleum, ONGC will have six functional or executive directors and four independent directors, which takes the board strength to 10. The company would still need one more independent director to ensure half of the total directorships are independent. A K Hazarika, ONGC’s director (onshore) and director (HR), is now holding the additional charge of CMD, while the government is in the process of selecting a CMD.
After the FPO, government stake in ONGC is expected to come down to 69.14% from the current 74.14%. ONGC has also got its oil and gas reserves audited independently to meet the capital market regulator?s norms.