Chidambaram Marshals $812 Million From Explorers to Cut Gap

Oil & Natural Gas Corp. and Oil India Ltd. may buy part of the government’s stake in the nation’s biggest refiner for as much as 50 billion rupees ($812 million), helping Finance Minister Palaniappan Chidambaram narrow the budget deficit.

The two state-run explorers will together purchase 10 percent of Indian Oil Corp. through block deals in the stock market within a week, Oil Secretary Vivek Rae said in New Delhi yesterday after a meeting of a ministers’ panel. The government holds 78.9 percent in Indian Oil, while ONGC, the country’s biggest driller, owns 8.77 percent.

The finance ministry is demanding higher dividends from state companies and selling shares as it seeks to narrow the fiscal deficit and prevent a sovereign credit-rating downgrade to junk. The government expects to raise less than half of its target of 400 billion rupees from share sales in the year to March 31. The ministers’ panel last week deferred a decision to sell Indian Oil shares to the public because they are undervalued, Rae said yesterday.

“The government’s using its own companies and doing all it can to meet its budget deficit target,” Gagan Dixit, a Mumbai-based energy analyst at Quant Broking Pvt., said by phone. “Indian Oil’s shares have more value and the potential to rise and ONGC and Oil India can benefit by selling these later.”

ONGC declined as much as 1.3 percent to 283.25 rupees and traded at 284.50 rupees as of 9:24 a.m. in Mumbai. Oil India dropped 1.1 percent to 470.80 rupees and Indian Oil gained 1.5 percent to 215.35 rupees. The benchmark S&P BSE Sensex fell 0.1 percent.

Government’s Kitty

The money raised from the sale will go entirely to the government. Chidambaram reiterated Jan. 15 he will achieve his target of narrowing the fiscal deficit to a six-year low of 4.8 percent this financial year and reducing it by 0.6 percentage point every year after that. The shortfall in the eight months through November reached 94 percent of the full-year target of 5.4 trillion rupees.

The government will pare its budget deficit to below this year’s target after curbing spending, two Finance Ministry officials with direct knowledge of the matter said this week.

India’s credit rating may be cut to junk in 2014 unless the general election due by May leads to a government capable of reviving economic growth, Standard & Poor’s said in November. The rating is currently at the lowest investment grade.

Indian Oil sells diesel, kerosene and cooking gas below the cost of production to curb inflation. The refiner is partly compensated for the losses with cash from the government and discounts on the sale of crude by producers including ONGC and Oil India. The government’s subsidy payments are often delayed resulting in the company reporting losses and higher debt.

Biggest Loss

Indian Oil’s profit dropped 82 percent to 16.8 billion rupees in the quarter ended Sept. 30. In the three months ended June 30, 2012, it reported a loss of 224.5 billion rupees, the highest by a company in India.

ONGC had 195.6 billion rupees of cash and equivalents and Oil India 124.9 billion rupees as of Sept. 30, according to data compiled by Bloomberg. The discounts the two explorers give on their crude oil sales to state-run refiners are reducing their cash flows.

ONGC’s cash from operations dropped to a three-year low of 362 billion rupees last financial year, according to data compiled by Bloomberg.

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