HPCL made a solid leap barely as trading commenced on Monday as reports surfaced that the AG had indicated that parliamentary approval may be bypassed in the divestment of the state-run company.
The news set off large-scale buying in the oil PSU, propelling it upward by 4.4% to Rs 312.50.
On 27 December 2002, the Cabinet Committee on Divestment sought the opinion of the Attorney General on the issue of parliamentary permission to privatise oil PSUs HPCL and BPCL. The Opposition had demanded that their divestment be referred to Parliament as they had been nationalised through Acts of Parliament in the first place. AG Soli Sorabjee has now indicated that the sale of stake in the two state-run oil refiners does not need parliamentary approval.
The Cabinet Committee on Divestment will now have to give the final nod for the clearance of HPCL's divestment. As per reports, the CCD may meet at the end of this month to discuss the HPCL, BPCL divestment.
The HPCL stock has witnessed much volatility over the last one year as a divestment drama unfolded and took favourable or unfavourable twists along the way. Calendar 2002 began on a strong note for HPCL as the scrip started moving up right from the beginning of the year on expectations of divestment and ahead of the de-control of the oil sector from 1 April 2002. From Rs 139.60 on 31 December 2001, the scrip surged 133.4% within a few months to Rs 325.90 on 5 March 2002. The surge came after the government, in early February 2002, cleared two big-ticket divestments, VSNL and IBP, and put both HPCL and BPCL on the block through strategic sale.
HPCL moved in a band of Rs 250-300 in the next few months before the stock came in for heavy selling after the government deferred divestment in the two oil refiners by three months on 7 September 2002. In a single trading session, on 9 September 2002, the stock plunged 26% to Rs 200.60 on heavy volumes of 77.4 lakh shares. The fall on the counter continued for a while as funds, which had built positions due to expectations of imminent divestment, resorted to liquidation, taking the scrip to a low of Rs 168.20 on 30 September 2002. The government's decision to defer divestment of HPCL and BPCL was due to an internal rift within the government regarding divestment of HPCL and BPCL.
From that low, the scrip once again started moving up as positions were built up on expectations of divestment once again amid reports that the government had worked out a consensus on divestment of the two oil PSUs. The consensus was that HPCL would be divested through the strategic sale route and BPCL through the public offer route. On 5 December 2002, HPCL surged 22% in a single trading session to Rs 274.85 ahead the government's formal announcement of a consensus formula in Parliament on 9 December 2002. The government later referred the issue to the AG who is said to have opined that the Parliament nod is not needed for the divestment of HPCL.
A cross section of market players - FIIs, domestic funds and operators - are keenly interested in HPCL. As on 31 December 2002, FIIs held 11.05% stake in HPCL, while UTI held 10.16% and LIC held 9.28%.
Last month, Oil & Natural Gas Corporation requested the Ministry of Petroleum and Natural Gas to grant it permission to participate in the divestment process of HPCL. The wide network of the oil refiner seems to be a major draw for private companies as of now. HPCL has about 4,600 retail outlets and a 20% market share in retailing petroleum products.
The government has a 51% stake in HPCL and a 66.2% stake in BPCL. Recently, both HPCL and BPCL said that they would consider an interim dividend. Market men say there have been expectations that the dividend pay-out may be large, as the government's accruals from divestment may fall short of target by a wide margin.
Twice in 2003, oil companies HPCL, BPCL and Indian Oil Corporation hiked prices of petrol and diesel following a surge in global crude oil prices. Fears of an US-Iraq war and the oil strike in Venezuela have sent global crude prices soaring in recent months.
Recently, as threats of US-Iraq war loomed large, the government reportedly directed oil companies to stock up oil. The petroleum ministry directed oil companies to raise inventory levels to full storage capacities. Oil companies have been asked to carry an added 8 million tonnes of crude oil and petroleum products for a period of 30 days. Currently, the total crude oil storage capacity with domestic refineries is 5.7 million tonnes, which is equivalent to 19 days of cover on an aggregate basis.