IOC's Rs 15,000-cr FPO deferred till year-end
State-owned Indian Oil Corp's (IOC's) Rs 15,000-crore share sale has been deferred till this year-end due to unfavourable market conditions and rising global crude oil prices.
Department of Disinvestment (DoD) last week held a closed door meeting IOC top brass, including Chairman R S Butola, to discuss the public offering involving a 10 percent stake sale by the government and an equal number of new shares by the company.
"IOC told DoD that conditions were not favourable for a follow-on public offer (FPO) now and the government should wait for some more time," a source privy to the meeting said.
The FPO was previously planned for first quarter of 2011 calendar year but was deferred to uncertain market conditions.
"Market conditions are just not right for a share sale now, the IOC top brass told DoD," the source said, adding, the DoD agreed with IOC's assessment and decided to review the situation later in the year.
The twin share sale programme is expected to garner close to Rs 15,000 crore.
IOC had last year hired six investment banks - Merrill Lynch, Citigroup, ICICI Securities, Morgan Stanley, SBI Capital and UBS - to manage the public offer.
The mega offer was part of the government's Rs 40,000 crore disinvestment programme for the current financial year.
Sources said IOC wants diesel prices to be freed from government control before the twin public offering to raise maximum funds.
The government had in June last year deregulated or freed petrol price from its control and announced intent to do the same for diesel rates. More than a year since then, state fuel retailers continue to sell diesel at subsidised rates.
"IOC believes diesel price deregulation will unlock the true value (of IOC)," the source said.
IOC and its sister public sector firms Bharat Petroleum and Hindustan Petroleum currently sell diesel at Rs 6.06 a litre loss and after including taxes the desired increase in retail price at Delhi would be Rs 6.82 per litre.
The government has been since last year planning to divest its 5-10 percent stake in IOC and Oil and Natural Gas Corp (ONGC) through separate FPOs to fetch about Rs 18,000 crore.
While government intends selling 5 percent of its holding in ONGC, a 10 percent divestment is on cards for IOC.
Alongside the government stake sale, IOC plans do a public offer of its 10 percent expanded equity to raise close to Rs 9,000 crore for part-financing its capital expenditure.
Post stake sale, the government's shareholding in ONGC will come down to 69.14 percent from 74.14 percent. In IOC, the twin divestment and stake sale would reduce the government holding from 78.92 percent to 64.57 percent.
According to the 2010 road map, IOC was to be disinvested first. It was to first sell 10 percent, or 24.27 crore equity shares, which at Wednesday's stock closing price of Rs 326.35 would fetch the company Rs 7,920 crore to help it part-finance its capital expenditure of Rs 75,000 crore.
This was to be followed by sale of 10 percent government holding, amounting to 19 crore shares, to raise Rs 6,200 crore. ONGC divestment was to follow this.
The sale of 5 percent or 42.77 crore equity shares in ONGC, at Wednesday's closing price of Rs 272.60, would fetch the government over Rs 11,660 crore.