Calling for a Sebi probe into ONGC's sudden decision to buy GSPC's stake in KG basin gas block for USD 1.2 billion, Congress MP Jairman Ramesh today said the PSU had flouted listing guidelines and did not secure approval of minority shareholders for the transaction.
Calling for a Sebi probe into ONGC’s sudden decision to buy GSPC’s stake in KG basin gas block for USD 1.2 billion, Congress MP Jairman Ramesh today said the PSU had flouted listing guidelines and did not secure approval of minority shareholders for the transaction.
In an open letter to Sebi Chairman U K Sinha, he said as per Oil and Natural Gas Corp’s (ONGC) own admission, it and GSPC are related parties of the Government of India.
“It is needless to say that there is indeed a strong ‘relationship’ between the Government of Gujarat that owns GSPC and approved its borrowing binge between 2005 and 2014 and the Government of India that owns ONGC, which suddenly after 2014 seems to have had a realisation that buying GSPC’s gas block in KG basin is a virtue. Clearly, this entire ONGC- GSPC deal is an utter sham,” he wrote.
ONGC, he said, has flouted Sebi’s guidelines for listing obligations and disclosure requirements and did not secure the approval of the minority shareholders for this transaction. “Sebi should order an inquiry into this proposed transaction immediately,” he said.
“The sanctity and integrity of the venerable 83-year-old institution called the Reserve Bank of India has been demolished following the demonetisation of November 8, 2016. Its credibility has been severely damaged. In this context, it is even more imperative that the 25-year-old institution called Sebi guards its professionalism fiercely,” he wrote.
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Ramesh said it is incumbent upon Sebi to investigate the ONGC-GSPC transaction on behalf of minority shareholders.
“Specifically, Sebi’s guidelines prescribe a ‘majority of minority’ rule for material transactions of listed companies, including PSUs. Therefore, I urge you to examine this proposed transaction between ONGC and GSPC in the greater interest of 5.5 lakh small shareholders spread across small cities and towns of India,” he asked Sinha.
He called ONGC buying Gujarat State Petroleum Corp’s (GSPC) 80 per cent stake in the Deendayal block a “Rs 8,000 crore scam”.
The Congress leader said GSPC has been trying to recover gas from the KG basin block for more than a decade without much success despite massive borrowings.
“The Comptroller and Auditor General of India (CAG) has issued a scathing report indicting GSPC of incurring massive losses to the exchequer through dubious transactions.
“The CAG report submitted in the Gujarat assembly in March 2016 notes that GSPC has loans outstanding of nearly Rs 20,000 crore. The company is facing interest dues alone of Rs 1,800 crore every year. Its profits have collapsed to a mere Rs 23 crore. GSPC is on the verge of bankruptcy,” he said.
Ramesh said GSPC in its own words has stated that “geographical and geophysical conditions in the KG block have made it a technical challenge to explore and develop. Factors such as low porosity, low permeability, high pressure, high temperature and a tight reservoir make for geological complexities of the kind which has rarely been tackled earlier by any exploration and production (E&P) company in India”.
GSPC has spent large sums of money, hired foreign experts and imported sophisticated equipment and yet could not find gas. “Then, why does ONGC deem it fit to pay Rs 8,000 crore to acquire this very block?” he said.
Ramesh added that ONGC says “the acquisition of the KG block fits well with the strategy to enhance natural gas production from domestic fields on a faster pace”.
This, he said, is a bewildering justification when the owner of the asset itself claims it is virtually impossible to extract any gas.
“We see limited merit in ONGC’s strategy of acquiring these assets. This acquisition may not create meaningful value to shareholders,” he quoted investment bank Kotak Securities as saying on ONGC’s acquisition plan.
Also, ONGC’s cash balance will take a 63 per cent hit for an acquisition that will not add any value.
“There is no analyst who thinks this is a good strategy for ONGC and its shareholders. ONGC’s cash reserves belong to all its shareholders. Did ONGC secure the permission of the minority shareholders as well to use their cash to bail out GSPC?,” he asked.