New Delhi: The government has rejected criticism by Goldman Sachs Group Inc. analysts that it failed to consult minority shareholders on $20 billion (Rs1 trillion) of subsidies for refiners taken from Oil and Natural Gas Corp. Ltd (ONGC).
Clearing the air: All shareholders know about the subsidy, says petroleum secretary R.S. Pandey. Madhu Kapparath / Mint
“The government is the majority shareholder in ONGC and in every company, the majority shareholder decides,” R.S. Pandey, petroleum secretary, said by phone from New Delhi on Monday. “It is not illegal.”
Goldman Sachs said it has “serious” concerns about ONGC’s corporate governance after the cash withdrawals spurred repeated objections from investors and independent directors. The government has taken cash from the energy explorer for six years to cushion losses at state-run refiners that sell fuel at below cost, according to a 5 March report by the bank.
Indian companies are under pressure to increase accountability after the founder of Satyam Computer Services Ltd admitted in January that he fabricated Rs7,136 crore of cash and assets in the country’s biggest corporate fraud.
ONGC reported net income of Rs19,870 crore in the year ending March 2008 on sales of Rs96,780 crore, according to data compiled by Bloomberg. The cumulative impact of the subsidy burden on the explorer’s profit after tax in the six years to March 2009 is $12 billion, Goldman Sachs said, citing company data and its own estimates.
“Minority, majority shareholders, everyone knows about the subsidy given by ONGC,” Pandey said. “It is well documented and the exchanges are always informed.”
The explorer gives subsidies in the form of discounts to refiners that sell fuels below cost to help the government curb inflation. India’s monopoly gas distributor, GAIL India Ltd, and explorer Oil India Ltd also provide subsidies to the refiners.
“There are no issues with disclosure,” said Jayesh Shroff, senior fund manager at SBI Mutual Fund, which owns ONGC shares. “Everyone who buys the ONGC stock knows there could be some subsidy burden. That is an issue between the government and ONGC.”
ONGC shares declined 1.14% to close at Rs665.75 in Mumbai trading on Monday, after falling as much as 2.5%. The Bombay Stock Exchange’s benchmark index, the Sensex, lost 1.99%. The stock has lost 30% in the past year compared with a 49% fall in the Sensex.
“Issues with corporate governance at ONGC are among the more serious for companies in our coverage universe,” Goldman Sachs analysts Nilesh Banerjee, Karthik Bhat and Durga Dath wrote in the report. “We believe minority shareholders are likely to suffer in a situation where their interests are poorly protected.”
Goldman Sachs Asset Management holds 110,725 shares, or a 0.01% stake, in ONGC. Goldman Sachs’ spokesman Edward Naylor didn’t comment.