SC directive to adversely affect oil PSU disinvestment: Infraline

Our Corporate Bureau
20 September 2003

The disinvestment of HPCL and BPCL has been on the cards for a long time. HPCL is now currently in the advanced stage of disinvestment with the due diligence process commencing from 5 August. Shell-Saudi Aramco, BP-Kuwait Petroleum Corp, Petronas of Malaysia, Chevron Texaco, Exxon Mobil, Reliance and Essar Oil have been competing for a majority stake in HPCL. With the SC directive, the due diligence process will come to a halt, Infraline feels.

The market prices of HPCL and BPCL had increased by nearly 300 per cent during the run-up to disinvestment. The impact of the directive is being felt instantly. The share price of HPCL fell by a whopping 11.64 per cent at closing today on the BSE. Infraline says it is likely to continue over the next few days. With the apprehension of a similar decision with other PSU disinvestment, the share prices of public sector undertakings have come down.

Says Infraline director Yogesh Garg: "In order to seek a cabinet nod before the disinvestment, the government has to table a bill in the parliament. This is unlikely to happen in the winter session with the assembly elections round the corner. The support of Congress and NDA [National Democratic Alliance] allies will be essential for the passage of the bill. This is not likely to happen."

The disinvestment process, if it goes through, will not happen at least for another 8-10 months. This period will be plagued by numerous uncertainties. The current expansion plans of HPCL will be hit immediately with a sharp fall in market capitalisation, he feels.

Oil retail sector has also been opened up. The new retailers (including Reliance, ONGC and Essar Oil) had been looking at HPCL's disinvestment as an opportunity to take over an established oil retail chain for a fast market penetration. In the period of delay, the new players will be able to establish a better market presence.

This delay is also likely to put off some investors. The Khemka group has moved away from the Indian market altogether and is scouting for acquisitions in former Soviet republics. It is likely to have more far-reaching implications than currently perceived, says Garg.