In a bid to avert any possible linkage with the Satyam Computers scandal, state-owned Oil and Natural Gas Corporation (ONGC) has decided to drop a proposal to acquire a 10 per cent stake in Larsen and Toubro (L&T). L&T currently owns 12 per cent of Satyam.
In a December 18, 2008 letter, ONGC chairman and managing director RS Sharma informed the petroleum ministry about a proposal — emerging out of its December 1 board meeting — to acquire UTI’s holding in L&T.
As on December 31, 2008, UTI held 8.9 per cent of L&T.
“UTI, which is holding around 10 per cent shares of L&T, is on a lookout for a buyer,” the letter stated. “In view of the fact that L&T has regular business relations with ONGC, it could explore the possibility of strategic investment in L&T.”
At L&T's market capitalisation of Rs 46,000 crore in December 2008, the proposal would have meant an investment of around $1 billion (approximately Rs 4,800 crore at today’s exchange rate) by ONGC, which is currently sitting on a cash surplus of over Rs 20,000 crore.
“We were never serious about buying a stake in L&T,” Sharma told Hindustan Times. “It was just a suggestion made by an independent director while reviewing avenues of investing the company's surplus funds.”
While Sharma refused to name the independent director, sources said it was V.P. Singh, former chairman, IFCI.
On what led to the backtracking by ONGC on this proposal, a senior official who did not wish to be named said, “Around the time the proposal was mooted, the Satyam scam unfolded. Later, talks of L&T taking over Satyam also began.”
Fearing that a proposal to pick up a stake in L&T could link ONGC with the ongoing Satyam fiasco, the company decided to drop this proposal, the official said.
ONGC informed its board that it was not pursuing the L&T proposal as it would be seen more as a financial investment than a strategic one. Further, following L&T’s involvement in Satyam, “such a opportunity should be best ignored.”