Big Gains: IOC told to weigh bonus

NEW DELHI: Shareholders of Fortune 500 company Indian Oil (IOC) may be in for some good news. The government has asked the navratna oil company to consider a bonus issue “in the immediate future”, as its reserves and surplus have mounted to Rs 33,689 crore, almost 29 times its paid-up capital (Rs 1,168 crore).

The biggest beneficiary of this move would be the government, which holds over 80% in IOC. The bonus issue, however, would come at a piquant time when oilcos like IOC are already losing money on the sale of petroleum products as retail prices have remain unchanged under government directive. Oil companies have been depending on doles like oil bonds to stay in the black.

According to department of public enterprises (DPE) guidelines, PSEs having reserves in excess of three times their paid-up capital should immediately consider issuance of bonus shares to shareholders.

“IOC should consider declaration of bonus shares in the immediate future since the company’s reserves and surplus are about 29 times its paid-up capital,” a source in the ministry of heavy industry & public enterprises said.

Official sources said IOC is, however, reluctant to issue bonus shares at this juncture when public sector oil marketing companies are losing about Rs 240 crore everyday on fuel retail. IOC commands over 40% of the domestic fuel retail market.

“In the current market scenario, there is no certainty regarding revenue streams and, therefore, issuance of bonus shares might result in reduction in dividend yield for shareholders,” a senior IOC official argued. IOC had issued bonus shares in the ratio of 1:1 in 1999-2000 and 1:2 in 2003-04.

Brushing aside IOC’s apprehension, DPE said despite under-recoveries, the oil major has been constantly making profit.
Bonus shares are additional shares issued to the existing shareholders free of cost. They are issued by cashing in on the company’s free reserves.

A company accumulates reserves by retaining part of its profit (not paying as a dividend) over a period. When free reserves increase beyond a certain level, the company issues bonus shares by converting part of its reserves into capital. Issuance of bonus shares would mean more number of IOC shares would be traded in the market.