IndianOil may tank up via asset sale
New Delhi   29-May-2008
<b>Co says will run out of cash by Sept liquidity pinch to hit fuel taps</b> <b>Besieged refiner mulls sale of stakes in ONGC and GAIL</b> INDIA'S biggest refiner and marketer IndianOil is likely to sell a part of its investments in state-run ONGC and GAIL India to raise funds and tide over an acute and worsening liquidity crunch, a senior official said. IndianOil chairman Sarthak Behuria on Wednesday said the company's acute liquidity crunch has forced it to put on hold all new projects. If the situation persists (rising global crude oil. prices and no change in retail fuel prices), "the company would not have any money (liquid cash) by September-end," he said. The situation would be such that "we have to convert our capital assets to have liquidity", he added. IndianOil holds 16.45 crore shares, or 7.69%, in ONGC, valued at Rs 14,438 crore. It also owns another 2.04 crore shares, or 2.41%, in GAIL, valued at Rs 816 crore. "Selling our investments in ONGC and GAIL will be our last resort. First, we want to raise money through borrowings. We have even sought to increase our borrowing limits to Rs 80,000 crore," IndianOil finance director S Narashiman told ET. However, this move will be pursued only after IndianOil exhausts its borrowing limits of around Rs 55,000 crore. Its borrowing has already touched Rs 41,000 crore, as it is doing so at Rs 2,000 crore a month to meet its working capital needs. Also, the liquidity crunch is likely to impact future fuel availability in the retail market. Mr Behuria said IndianOil would not import fuel (particularly diesel) to meet domestic demand. "We will continue our refining activities and money would be spent to buy crude, We can sustain a domestic (diesel) demand growth up to 10-12%, but certainly not at the current abnormal’ growth, which is about 22%," he said. IF IndianOil does indeed sell its ONGC and GAIL stakes, it would not be the company's first time. The refiner had sold 2.04-crore shares of GAIL in March 2006 at Rs 275 per share and ONGC's 2.74-crore shares in April 2006 at Rs 1,340 per share through bulk deals, raising Rs 561 crore and Rs 3,670 crore respectively. An analyst with a Mumbai-based international firm said, "IndianOil may sell a part of its strategic equity investments in ONGC and GAIL. The purchase value of such investments was Rs 1,903 crore while IndianOil can raise over Rs 15,250 crore by selling them at current prices." However, this may not be the opportune time for IndianOil to shed its stakes in ONGC and GAIL, which it calls hidden reserves. ONGC shares closed at Rs 875 on BSE on Wednesday compared to their all-time high of Rs 1,387 on November 2, 2007. The ONGC stock has lost 7% in the last one week and 17% in the last one month. Similarly, GAIL shares closed at Rs 400 on the BSE on Wednesday against their all-time high of Rs 55.5 on January 1. The GAIL stock has gained 2% in the last week and lost 8% in the last month.