New Delhi: State-run Oil and Natural Gas Corporation (ONGC) may seek management control of the giant Rajasthan oilfields in lieu of allowing UK's Cairn Energy to sell majority stake in its Indian arm that now operates the field, to a non-oil firm, Vedanta Resources for $8.48 billion, reports PTI.
Cairn India with 70% interest is the operator of the 6.5 billion barrels Rajasthan block that can produce 240,000 barrels of crude oil per day, equivalent to output from ONGC's prime Mumbai High fields.
ONGC holds 30% interest and pre-emption or right of first refusal (ROFR) in case Cairn was to exit Rajasthan assets.
Industry sources said today that though the Production Sharing Contract (PSC) for the Rajasthan block was silent on prior government approval in case of transfer of ownership of a company having stake in the block, ONGC believes its rights flow from joint operating agreement (JOA) for the field that provides for ROFR.
The oil ministry too is keen to protect the interest of ONGC, which currently is a net loser in the Rajasthan block as it has to pay Cairn's share of royalty on crude oil to the government.
Sources said petroleum minister Murli Deora and oil secretary S Sundareshan told Cairn Energy Plc chief executive Bill Gammell, who came here on a flying visit yesterday, that government approval was central to the Vedanta deal.
They told Mr Gammell that Cairn needs to apply in writing for approval and the government will decide on the case after studying provisions in the PSC and JOA of each of the 10 properties that Cairn India had.
Sources said the ministry was upset that so far only press statements issued by Cairn Energy and Vedanta Resources announcing the deal have been sent to it and no formal approach has been made for seeking clearance.
The ministry insists the deal, wherein Cairn Energy is selling up to 51% out of its 62.37% stake in Cairn India, needs explicit government approval and not just regulatory approvals as mentioned in the press releases.
Cairn maintains that the Vedanta deal was a controlling stake transfer and not an asset transfer, which would have triggered a government approval but the ministry maintains that since the PSCs for some of the Cairn blocks has provision for prior consent, the whole deal is contingent on government approval, sources said.
While ONGC is not keen on making a counter offer as it sees the Rs405 per share price being paid by Vedanta as too high, it getting operatorship of the Rajasthan fields together with the government compensating it for the royalty it pays on behalf of Cairn India would make the project viable for it.
Sources said Vedanta's deal was contingent on government approval, as Cairn's three producing oil and gas assets, including the giant Rajasthan fields and seven exploration blocks, either have explicit provisions for seeking prior approval before transfer of interest or gives pre-emption, or the right of first refusal (ROFR), to partners like ONGC.
The stake sale now offers the government an opportunity to settle the issue of the Rs14,000 crore loss that ONGC will incur over the life of the Rajasthan oil fields, as it has to pay statutory levies like cess and royalty on behalf of Cairn India.
ONGC has 30% interest in the Rajasthan fields, but has to pay cess and royalty on the entire production, thereby giving negative returns on its investments.
The Production Sharing Contract (PSC) for the Rajasthan field is silent on government approval for transfer of ownership, but the Joint Operating Agreement between Cairn India and ONGC gives the partners ROFR in case of stake sale.
The same is the case with gas discovery block CB-OS-2 and the eastern offshore Ravva oil and gas fields. But its seven exploration blocks, including the KG-DWN-98/2 block with ONGC, have explicit provisions for government approval in case of a change in control.
Cairn India and ONGC are to spend $2.67 billion in capital expenditure in the Rajasthan block and $1.52 billion in operating expenditure, besides $941 million towards the cost of a pipeline to transport crude oil.
ONGC's net present value (NPV) (the value today of anticipated future incomes and expenditures) works out to negative $1.435 billion and a negative $1.471 billion at a crude price of USD 60 and 70 per barrel, respectively, they said.
The negative NPV is a result of ONGC being made liable to pay 20% royalty on the entire crude oil production, while Cairn is exempt from payment of any levy.
The massive daily turnovers of the two national bourses hide some shocking facts, as the finance ministry’s startling revelations in Parliament reveal.
Narrow, shallow, illiquid and concentrated in the hands of a few individuals located in a few centres — that describes the state of the Indian Capital Market, nearly 20 years after India embarked on financial liberalisation and ostensibly unleashed a boom in stock investing and spreading the equity cult. In fact, the boom is eyewash and this information is provided by none other than the minister of state for finance, Namo Narain Meena, in response to a question in Parliament (Unstarred question 1669) on 10 August 2010 by Rajya Sabha MP Sardar Sukhdev Singh Dhindsa.
Mr Dhindsa asked for the number of client identities and PAN identities who actively traded in the National Stock Exchange (NSE) and contribute to 50%, 60%, 70% and 80% and 90% of total trading turnover on an average, on a daily basis in the cash equity market and in the equity futures & options segment. He asked for these numbers to be provided for the three-month period from April 2010 to June 2010. The numbers are absolutely startling.
According to Mr Meena, only 30.90 lakh investors traded on the NSE’s cash market in the April-June quarter. Of these 52% were retail, High Networth Individuals (HNIs) and corporate customers. Institutional investors and proprietary traders accounted for 48% of all trading (24% each).
Slice the data further and these figures should be extremely worrisome for policymakers.First, 90% of trading in the April-June 2010 period came from just 192,200 investors, says the Minister. Break it down further and the Minister says 80% of turnover came from just 41,654 investors. In other words, 1,50,546 investors (78%) accounted for just 10% of trading turnover.
Cut it further and it gets worse. Just 8,727 investors accounted for 70% of turnover among which 413 were proprietary traders, mainly brokerage houses. The Minister goes on to say that 60% of trading came from a mere 1,563 traders and half the trading turnover (50%) came from a shockingly low 451 of which 156 were proprietary traders! Mind you, this is data for a three-month period and not one single day.
The National Stock Exchange (NSE) records an average daily turnover of over Rs12,000 crore in the cash segment (up from over Rs4,500 crore in 2005-06) and over Rs83,000 crore in the futures and options (derivatives) segment while the Bombay Stock Exchange (BSE) records a daily turnover of over Rs3,000 crore in the cash segment. While these numbers are much higher than what they were a decade ago, but they are misleading.
The derivatives segment of NSE is seven times larger than the cash segment and the main source of NSE’s profits and therefore massive salaries of its top management. So, shouldn’t it have more participants and a less skewed participation? Instead, the numbers here are downright scary and indicate that this market is just a casino frequented by a small closed club. According to Mr Meena, only 5.75 lakh clients traded in derivatives in the three-month period. Of these, 90% of trading came from just 18,035 (including 520 proprietary traders). This means that 5.57 lakh clients (97%) accounted for only 10% of total trading while only 3% of clients accounted for 90% of the trading!
Split it further and the number drops dramatically. Only 2,188 investors accounted for 80% of derivatives turnover in the three-month period. Just 537 investors account for 70% of trading, 223 investors accounted for 60% of trading, of which over half were proprietary brokerage firms. And a massive 50% of trading NSE's derivatives trading turnover, the main pillar of the Indian stock market system, comes from just 106 investors of which 58 are proprietary traders! How skewed can a stock market be, which is supposed to include a wide swathe of population?
Further, the Minister says that the top 25 brokerage firms on the NSE accounted for 42% and 43% of the cash equity and equity stock futures and options turnover in the April-June 2010 period. Can you imagine the phenomenal influence on stock prices that these 25 firms (out of 1,055 in the derivatives segment) have on stock prices? Hopefully, some Member of Parliament will ask the finance ministry for the names of these firms. Since the NSE has been fighting against disclosures under the Right to Information Act and the data is not in its annual report, the only way that the India public can get information about the big national hoax of an expanding capital market is through questions asked in Parliament. It will also be interesting to ask if the Securities and Exchange Board of India (SEBI) has any special monitoring mechanism for the 106 investors who account for half the derivatives market turnover.
But to really put the information in perspective, you have to look at the massive trading numbers that hide these pathetic participation figures. In the April-June 2010 period, the NSE’s trading turnover in the derivatives segment was Rs58,31,715 crore and in the cash segment it was Rs8,47,300 crore. In comparison, the BSE’s derivatives turnover was a pathetic Rs7 crore while its cash turnover was Rs2,73,101 crore.
In effect, the NSE, with a 96% market share (cash and derivatives put together) is a virtual monopoly. Yet, misleadingly, we tend to talk about the NSE and BSE almost as though they are equally large exchanges. This is probably because the BSE enjoyed a virtual monopoly for all but the past 15 years of its 130-odd years of existence.
Our perception about investor participation is also grossly misleading. According to the D Swarup Committee report, India has 80 lakh investors (who invest in debt and equity markets, either directly or through mutual funds and market-linked insurance plans). This official figure also represents a sharp decline from the two crore (20 million) investor population, claimed in investor surveys commissioned by SEBI in the 1990s.
The move might just result in the already beleaguered industry having to shoulder additional costs
The Securities and Exchange Board of India (SEBI) today asked all fund houses to facilitate smoother shift of mutual fund units between two demat accounts.
The National Stock Exchange (NSE) started its online trading platform for mutual funds (MFs) on 30 November 2009 and the Bombay Stock Exchange (BSE) launched its BSE StAR MF platform on 4 December 2009. The regulator allowed online transactions in mutual funds after abolishing entry loads in August 2009 in a bid to increase MF penetration in smaller towns. However, trading volumes failed to take off as desired by the regulator.
Today's SEBI circular says, "Regulation 37(1) of SEBI (Mutual Fund) Regulations, 1996 states that 'a unit unless otherwise restricted or prohibited under the scheme, shall be freely transferable by act of parties or by operation of law.' The spirit and intention of this regulation is not to prohibit transferability of units as a general rule or practice. However, it is noticed that mutual fund schemes prohibit transfer on a regular basis instead of on an exceptional basis."
According to industry experts, SEBI's order is yet another nail in the coffin for the fund houses.
"The National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) do not send data of such transfers on a daily basis to the asset management companies (AMCs). This becomes a hindrance in determining the actual beneficiary, i.e., the unit-holder, for benefits, documentation, redemption etc. To get daily data for such transfers, the depositories charge Rs5,000 daily per ISIN, i.e., per net asset value (NAV). This is a prohibitively excessive cost for any AMC. Transfer of units also increases activity at the registrar & transfer agents' end, creates scope for potential fraud, and might encourage non-adherence to the Prevention of Money Laundering Act (PMLA), etc.," Jimmy A Patel, chief executive officer, Quantum Mutual Fund, told Moneylife.
Mr Patel also pointed out that there were many ambiguities in the proposed move by the market regulator. "All in all, this will most likely cause an increase in costs all around without any material benefit to the investor. It helps to note that unlike an equity share whose value keeps fluctuating, the NAV of an open-ended scheme is not very volatile, and a transfer in an open-ended scheme doesn't serve much purpose. Besides, (applicability of) stamp duty too is a grey area. There is no clarity on who bears the cost, in what percentage, etc," added Mr Patel.
"This (SEBI move) will not add any utility for investors. SEBI wants to make mutual fund units more tradable in the stock market. It is doing so to prepare the enabling ground when every instrument will be held in demat form," said a top official from a fund house, preferring anonymity.