NEW DELHI, May 30: The disinvestment commission has deferred the decision on dilution of government equity in Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) and suggested that offloading of shares in these companies should be preceded by a government announcement on dismantling the administered price mechanism (APM).

In its third report, the commission has recommended strategic sale of Kudremukh Iron Ore Company Limited (KIOCL) and disinvestment of the shares of Container Corporation of India (CONCOR) and Mahanagar Telephone Nigam Limited (MTNL). It had wanted initial disinvestment in MTNL through a GDR issue. However, it is against dilution of government equity in Rail India Techno Economic Services (RITES) for the time being.

Addressing a press conference here on Friday, commission chairman G V Ramakrishna said any disinvestment of oil PSUs without an announcement regarding the dismantling of APM would result in a loss to the exchequer. He suggested that before such disinvestment, the government should make it known that the APM would be dismantled in two years.

Referring to ONGC he said, ``Disinvestment in the oil giant should be considered after organisational changes are in position and the new pricing policy is known.'' This will provide an opportunity to ONGC to assess its own requirement of funds and to plan the disinvestment of government shares and the company's initial public offer (IPO) requirement in a co-ordinated manner.

In case of OIL, Ramakrishna said disinvestment could be considered only after a year or so when OIL's own prospects were clearly established through the outcome of exploration activities in the North Brahmaputra area and government's policy on APM. ``The scope of disinvestment of government shares could be determined after balancing the requirements of the company for equity issues,'' he said.

The commission would review its position with regard to disinvestment of the oil PSUs later, he said.

With regard to MTNL, the commission suggested a GDR issue of 60 million shares (10 %) and suggested that the SEG decide the appropriate time keeping market conditions in mind. It has recommended disinvestment up to 49 % in MTNL and argued that the domestic market might find it difficult to absorb a very large issue.

It has further recommended that soon after the GDR issue through a book building process, a domestic offer of the remaining 28.3 million shares consisting of 4.73 % of equity might be made to institutional investors and small individual investors at a discount over the institutional price.

The commission has also suggested that MTNL should join the National Securities Depository Ltd (NSDL) before any fresh public issue. Ramakrishna said dematerialisation of shares ``will help small investors buy shares in quantities much less than the normal tradeable lots that can be traded on NSE without any discount.''

The commission has recommended dilution of government equity up to 49 % in CONCOR, suggesting that the company can come out with a public issue of 125 lakh shares.

As far as KIOCL was concerned, the commission was of the view that this was the right time to ``induct a strategic partner.'' The government had disinvested about 1 % of its holding and was left with 99 % of the equity amounting Rs 634.51 crore. The commission said the strategic partner could be offered 30 % of the equity to start with and also inducted in the management of the company.

It further said the government might enter into an agreement with the strategic partner providing for a further dilution of government equity to the extent of 43 %.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.