Wednesday, September 03, 2008

Tight rope walk

Bolstered by the initial success of its bid to acquire UK-based Imperial Energy, state-owned Oil and Natural Gas Corporation Ltd (ONGC) is planning to list its wholly-owned overseas exploration subsidiary ONGC Videsh Ltd (OVL) sometime in 2009. Well, the aims are clear – to get a premium valuation from international markets, build up its net worth (share premium stands credited to General Reserves can be capitalized through bonus issues to existing shareholders later - helps expand paid up capital) besides gaining acquisition currency.

But being registered in India, regulations require a domestic float before an overseas one.

Except that there is one hitch. The Indian government will be itching to use its revenues to subsidize the loss suffered by state owned oil marketing companies (like it does with ONGC) that sell petro products at a steep loss – to keep it affordable for the masses. No government ever had the guts to say `No' to subsidies so far. Now if OVL is listed abroad, will those foreign shareholders like their company to subsidize oil guzzling Indian masses? Will they understand APL – BPL divide? Looks like a tightrope walk. OVL will have a tough time convincing Indian government why it can’t subsidize India’s oil marketing companies and conversely will have it stiff explaining why it should support Indian government’s efforts in controlling oil price parity while on roadshows that precede the IPO.

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