When contacted, chairman and managing director, Gail, Proshanto Banerjee said the companys board on Friday cleared the proposal to sell ONGC shares. This decision, however, is subject to government approval, he added.
Sources said that based on the recommendations of the merchant/investment bankers JM Morgan Stanley and DSP Merrill LynchGail is evaluating four options in the domestic as well as international markets to monetise its investment in ONGC shares. These include a 100 per cent domestic secondary sale offering; doing a block trade for 50 per cent of the ONGC holding and the balance 50 per cent as non-convertible debentures (NCDs) with covered warrants or a 100 per cent exchangeable offering.
Following the government decision to sell its equity through cross holding by oil PSUs in 1999, Gail had purchased 2.5 per cent equity of ONGC at a cost of Rs 556.29 crore. It had purchased 3,42,66,845 shares of ONGC in 1999 at a rate of Rs 162.34 per share (face value of Rs 10 per share).
Based on current market price of ONGC share at Rs 609 per share, the expected cash inflows due to sale of ONGC shares work out to be over Rs 2,000 crore. Even ONGC has moved a similar proposal to sell its holdings in IOC and Gail, which will fetch it close to Rs 4,000 crore. Both the proposals are under consideration of the government, ministry sources said.
Company officials said that JM Morgan Stanley has suggested another option which can be utilised by Gail to realise better valuations for the holding. Under this option, it is suggested that Gail may do a block trade for 50 per cent of its ONGC holding and for the balance 50 per cent it should take a decision for either a sponsored GDR or a domestic offering through prospectus or domestic NCD with convertible warrants or international offering.
All the four options suggested by the merchant bankers were deliberated in detail at the companys board meeting on Friday. The board was of the view that a detailed financial analysis of all the four options available to Gail be done to arrive at a final decision for monetisation of ONGC stake, officials said.
In order to approve the methodology for monetisation of ONGC shares, including the appointment of merchant bankers, the board has also decided to constitute a committee of directors under chairmanship of Gails CMD Proshanto Banerjee and comprising director (finance) and additional secretary and financial advisor, petroleum ministry, Badal K Das.
Officials said Gail has recently mopped up Rs 500 crore through a bond issue and has projected an additional investment requirement of Rs 1,500 crore for implementation of its various pipeline projects during the current fiscal.
It is therefore considering the option of monetising ONGC shares as against raising debt from the market, they added.
For its additional fund requirements of Rs 1,500 crore for the current fiscal, Gail has planned yet another Rs 500 crore bond issue in the domestic markets. It also plans to raise $50 million through external commercial borrowings (ECB) and the balance finances will be met by way of term loans and by funds from the Oil Industry and Development Board (OIDB).