IOC, BPCL fall 4-5% after both companies may buy government's stake in GAIL

Indian Oil Corporation and Bharat Petroleum Corporation shares fell up to 5 percent intraday Monday after a news report suggested that both companies may buy entire government's stake in gas distribution company GAIL.

State-owned IOC and Bharat Petroleum Corporation may buy 26 percent stake each in gas utility GAIL India, paying the government over Rs 20,000 crore each to become integrated energy firms.

Following Finance Minister Arun Jaitley's February 2017 Budget announcement of creating integrated oil majors, IOC and BPCL had submitted separate proposals to buy the government's 54.89 percent stake in India's biggest gas marketing and transportation firm, GAIL.

A top source said since the government is not looking at actual merger of oil companies but only transfer of its ownership to a cash rich PSU, the best option would be to split the 54.89 percent holding in GAIL equally between IOC and BPCL.

At Friday's closing price, the stake in GAIL is worth close to Rs 41,000 crore.

In January this year, Oil and Natural Gas Corp (ONGC) bought out government's 51.11 percent stake in refiner Hindustan Petroleum Corp (HPCL) for Rs 36,915 crore. But HPCL hasn't been merged with ONGC and continues to remain a separate listed company with the same board. After the buyout, HPCL has become a subsidiary of ONGC, which gets up to two seats on the company board.

The source said IOC and BPCL too can follow the same model and split the government's stake equally among themselves. GAIL will become their subsidiary and will continue to operate as a listed company with an independent board. IOC and BPCL would get to appoint one director each on GAIL board.

At 12:12 hours IST, the stock price of Indian Oil Corporation was quoting at Rs 178.45, down 3.36 percent after hitting a 52-week low of Rs 176.

Bharat Petroleum Corporation was quoting at Rs 431, down 3.68 percent and Hindustan Petroleum Corporation was down 3.2 percent at Rs 353.10 on the BSE.