Oil and Natural Gas Corporation and Indian Oil Corporation are expected to hit the market to sell their cross-holdings.
The move will help them fund their expansion and acquisition plans and also kick off consolidation in the petroleum sector.
According to a plan drawn up by the government, IOC will sell half its 13.7 million ONGC shares in the domestic market and the rest to international investors so that ONGC is listed on the New York Stock Exchange. IOC holds a 9.6 per cent stake in ONGC.
Similarly, ONGC would sell its 9.1 per cent holding in IOC in the domestic market, senior government officials told Business Standard.
ONGC is expected to realise Rs 4,000-5,000 crore (Rs 40-50 billion) through the sale of IOC shares. The proceeds are to be used for acquiring a part of the government's stake in either Hindustan Petroleum Corporation Ltd or Bharat Petroleum Corporation Ltd.
The Centre holds 51 per cent equity in HPCL and 66 per cent in BPCL.
The Rs 10,000 crore (Rs 100 billion) that IOC is expected to garner through the sale of its ONGC holdings is proposed to be used for acquiring 26 per cent of Oil India Ltd. The government is planning to sell its 26 per cent share in OIL for around Rs 2,000 crore (Rs 20 billion).
The rest of the money will be used to finance IOC's Panipat and Paradip refinery and petrochemicals projects. The company plans to put in place an annual refining capacity of 9-15 million tonnes in Paradip, for which it is planning to invest around Rs 20,000 crore (Rs 200 billion).
Petroleum Minister Mani Shankar Aiyar has proposed a merger of oil public sector companies to create two large entities. A committee to look into the various options for the merger is to be constituted shortly.
The government is looking to earn around Rs 2,000 crore (Rs 20 billion) from the sale of its OIL stake, and another Rs 4,000-5,000 crore by selling its equity in HPCL or BPCL.
IOC, too, stands to gain as it will get a hold in OIL, which it has been eyeing for some time. The two companies recently signed a memorandum of understanding for jointly undertaking upstream activities.
"This strategy will help the government, as there will be no dilution of its holding in these companies and hence no opposition from the Left parties. Simultaneously, the proceeds can help it fill the deficit to some extent," said an official.
This could create the base for further consolidation, wherein IOC and OIL would come together and ONGC, HPCL and BPCL emerge as another public sector player in the petroleum sector, the official said.
Based on IOC's closing price of Rs 506.40 on Thursday on the Bombay Stock Exchange, its market capitalisation is estimated at Rs 59,148 crore (Rs 591.48 billion). ONGC's market capitalisation, with a closing price of Rs 843.25, works out to Rs 120,241.55 crore (Rs 1,202.415 billion).
Uncrossing the holdings
What IOC would do
What ONGC would do
What the government gets