An Oil & Natural Gas Corp. (ONGC) logo on display at a news conference in New Delhi | Prashanth Vishwanathan/Bloomberg
An Oil & Natural Gas Corp. (ONGC) logo on display at a news conference in New Delhi | Photo: Prashanth Vishwanathan | Bloomberg
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New Delhi: The Modi government’s policy of pushing state-run firms to shell out more dividends, go in for buybacks and acquire stakes in other state-owned firms to meet its fiscal deficit targets has badly hurt the country’s biggest oil explorer and a public sector star — the Oil and Natural Gas Corporation.

ONGC is operating on precariously low cash reserves as it looks to pay off debts from its acquisition of Hindustan Petroleum Corporation Limited (HPCL) and follow the government’s diktat on share buybacks and dividend payouts.

As of September 2018, ONGC’s cash and bank balances were at Rs 167 crore, down from Rs 1,013 crore in March 2018 and Rs 9,511 crore in March 2017.

Infographic by Arindam Mukherjee | ThePrint
Infographic by Arindam Mukherjee | ThePrint

The firm has been using its accruals to pay off its loans, which have nearly halved to Rs 13,994 crore (September) from Rs 25,592 crore in March 2018.

ONGC did not respond to questions from ThePrint. This report will be updated when it does.


Also read: Modi govt’s oil policies hurt bid to sell stake in ONGC


Why it’s a problem for ONGC

Oil explorers, due to the risky nature of the business, need sufficient cash balances to meet their working capital requirements. This should ideally be more than Rs 5,000 crore, former ONGC officials said.

ONGC acquired HPCL for Rs 36,915 crore last year as part of the government’s efforts to meet its disinvestment targets. While it funded a part of the acquisition through cash reserves, it borrowed in excess of Rs 20,000 crore for the acquisition.

“All of ONGC’s cash reserves were utilised in HPCL’s acquisition. ONGC had to borrow funds in addition to using its reserves to fund the deal. The cash accumulations are not happening because ONGC is using the surpluses to pay back the debt. The balance sheet as of September-end shows that more than half the debt has been repaid,” said a retired senior ONGC official, who did not wish to be identified.

Infographic by Arindam Mukherjee | ThePrint
Infographic by Arindam Mukherjee | ThePrint

“In addition, the dividends also have to be paid. All this is eroding the surplus. Ideally, in exploration, working capital requirements have to be met and a cash balance of Rs 5,000-10,000 crore is needed.”

ONGC paid a dividend of Rs 8,470 crore in 2017-18, including dividend distribution tax, compared to Rs 7,764 crore in 2016-17.

In addition to the dividends, ONGC also announced a share buyback in December of Rs 4,022 crore.

‘Alarming’ situation

Aloke Kumar Banerjee, former director (finance) at ONGC, said such “alarming” levels of cash balance have never been witnessed in the corporation’s history. He attributed it mainly to the recent acquisitions by ONGC — both HPCL and the Gujarat State Petroleum Corporation’s stake in the KG Basin gas block.

“Companies involved in exploration and production typically require some cash for leverage, as it’s a high-risk business. Internationally too, E&P (exploration & production) companies do business mainly on equity and not on debt. Better liquidity also helps in improving the firm’s credit rating internationally at the time of raising funds,” Banerjee said.

Infographic by Arindam Mukherjee | ThePrint
Infographic by Arindam Mukherjee | ThePrint

“The capital expenditure and operating expenditure of ONGC will be more than Rs 1 lakh crore. Typically, the level of the cash reserves should meet at least one month’s expenses.”

However, Banerjee also added a positive observation — that the rising oil and gas prices will help ONGC quickly replenish its reserves.


Also read: Modi govt promised to raise India’s crude oil output – but it actually dropped last 5 yrs


 

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22 Comments Share Your Views

22 COMMENTS

  1. Why the government should interfere with the day today functioning of PSUs If they find anything wrong, then take action against the concerned. But it should not be fair if these entities have to function to fulfil their whims and fancies. SEBI should bring strict legislation as it deprives the interest of minority shareholders.

  2. if the merger of HPCL or equity take over of GSPC was right decision than whether the Govt or ONGC had ever gone into a detailed study for vertical integration.There is burning instance of YPF which has all types of vertical integrations misrably failed.My understanding is HPCL was imposed on ONGC, by govt to meet disinvestment targets and ONGC being cash rich and soft target for arms twisting by any deptt or govt..As regards precarious cash situation,let it be known that it may have temporary impacts butdue to strong financials,ONGC operations the financials including cash reserves will consolidate, as is usual in exploration copmpanies.

  3. As far as decline in market cap of ONGC is concerned, it is global phenomenon amid decline in oil prices since 2014. On the ONGC’s acquisition of HPCL, it makes perfect sense for an E&P company to acquire a downstream company so as to galvenise it’s profitability in the wake of fluctuating oil prices.
    Its not good to paint a gloomy picture always.

  4. Is it acquisition of HPCL or 7000 crores plus acquisition of bankrupt – under Modi CM ship of Gujarat and possible siphoning
    Of funds – GSPCL

  5. What more we can expect from a lawyer finance minister ‘ he compelled HAL to give salary to it’s by taking huge loan despite HAL ‘ s huge amount due on IAF . This government is destroying good PSU to give profit to corporates .

  6. I think such articles can easily mislead people at large. It’s a fashion to say something about Government Policy without fully understanding the motive / intent.
    Downstream Acquisitions of PSUs / Investing surplus within India’s own exploration and production operations is perfect way of keeping Indian money within the Country.

  7. It’s a complex industry. I may be wrong, but the writer does not seem to have the knowledge for writing a fair analysis.

  8. This disaster is solely the high handed action of Arun Jeitley who forced ONGC to buy the govt stakes in HPCL and thus draining the reserves of ONGC. The tragedy is that sgencies like CAG knowingly ignore such action. Some private share holder of ONGC should sue the govt

  9. I don’t like concept of disinvestment. Instead make PSUs more profitable by good management and less political interference. DISINVESTMENT is a concept like when you have no money to feed family than sold your properties. THIS POLICY OF MODI WILL DESTABILIZED A INDIAN ECONOMY IN LONG RUN.

  10. ONGC is one of the most corrupt company in India. I have worked for ONGC for many years and I know they are one of the most corrupt and arrogant company we have. I hate ONGC. Don’t blame Modi for the debacle. The people working from small peon to the boss official , everybody is corrupt . They can do anything for money. They are so corrupt. Shame on them.

  11. what else one expect from him…loot is going on for decades, white British thieves have been replaced by brown one nothing new.

  12. I had just very general telephonic discussion with one journalist on the issue. While I conveyed that I was not aware of the latest financials of ONGC, I was not conveyed that my name would be used in such article. I personally feel such articles need in-depth research to be meaningful. Thought to share my view with the readers of the article. Thanks.

  13. It’s a bias article without details. HP purchase is not forced one. PSU are required to be competing industry , not white elephants. Government has no business to be in business. Past was different. Now let everything except Postal department including nationalized bank be privatized. Socialist systems have failed worl$ over and government employees are not working efficiently in India.

  14. Such a poorly researched financial article. No talk of economies of scale with takeover amongst a lot of other things. Would have been better written if you had provided a balanced view, instead of imposing your own, maybe biased opinion

  15. Private corp looking for gold class assets of PSU. Private sector is not bad per se but depth, openness and transparency is not visible in Indian scenario. Only few corporates grabbing all important tenders and assets with proportionate risk.
    Let the PSUs live .

  16. Make a Navratna company sick and sell to private players who contribute to personal and party fund.
    Next five years strategy.

  17. It is a proof CHOKIDAR CHOR JAI confirm .Jai Chokidar Chor Narendra Modi hai& Chokidar MAHACHOR Jootelie is his companion in his CHORI .

  18. Sucked dry. Like the fisc. Enduring mystery where all the trillions, including the bonanza from lower oil prices, have gone. Government ads could not have been more than ten, twenty thousand crores.

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