The Telegraph
Friday , January 17 , 2014
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Block deal route for IOC stake sale

Moily: Cash plan

New Delhi, Jan. 16: A panel of ministers today approved the sale of a 10 per cent stake in Indian Oil Corporation (IOC), which will help the government to raise about Rs 5,000 crore. State-owned ONGC and Oil India are expected to pick up 5 per cent each.

“In-principle, we have taken a decision for a block deal. The modalities will be worked out (soon),” oil minister M. Veerappa Moily told reporters after a 35-minute meeting of the ministerial panel.

This will be the first divestment through a block deal this fiscal as the nodal ministry and IOC were opposed to a public float because of the poor valuation of the firm and depressed market conditions.

The two upstream firms will buy the 10 per cent stake at a discount of one per cent to the previous day’s closing price. They will also have the option to sell the stocks in the market any time without any restriction.

The government holds a 78.92 per cent stake in IOC as on June 30.

The stake sale will happen next week after the boards of ONGC and Oil India take a decision, oil secretary Vivek Rae said.

Sudhir Vasudeva, chairman of ONGC, which already holds an 8.77 per cent stake in IOC, said “most likely” the 10 per cent stake would be split equally between ONGC and Oil India.

“The 5 per cent stake will cost us Rs 2,200 crore to 2,300 crore and this amount will not have any bearing on our capital expenditure plans,” he said.

Oil India is sitting on a cash pile of about Rs 8,000 crore.

“We feel that the share of IOC is grossly under-priced right now. It commands more value. Normally, we will not want to do a block deal (but since the share price is low), we thought we should follow this route, which will enable revenues to be raised,” Rae said.

The IOC scrip closed 1.48 per cent higher at Rs 212.05 on the BSE today.

A trade, with a minimum quantity of 5 lakh shares or a minimum value of Rs 5 crore, executed through a single transaction on a separate window of a stock exchange constitutes a block deal.

In the late 1990s, the government had sold shares in ONGC, GAIL and IOC in block deals to raise Rs 4,643 crore.

The government has so far raised Rs 1,325 crore from divestments in MMTC, Hindustan Copper, National Fertiliser, ITDC, State Trading Corp and Neyveli Lignite.

The IOC stake sale will make up for more than one-tenth of the divestment target of Rs 40,000 crore for the current fiscal.

“We are working very hard to meet the divestment target,” disinvestment secretary Ravi Mathur said.