IOC’s Rs. 15,000-cr FPO deferred till year-end
New Delhi   11-Aug-2011

State-owned IndianOil’s (IOC) 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 RS Butola, to discuss the public offering involving a 10 per cent 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 an 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 per cent stake in IOC and Oil and Natural Gas Corporation (ONGC) through separate FPOs to fetch about Rs 18,000 crore.

While the Government intends selling 5 per cent of its holding in ONGC, a 10 per cent divestment is on cards for IOC.

Alongside the government stake sale, IOC plans do a public offer of its 10 per cent 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 per cent from 74.14 per cent. In IOC, the twin divestment and stake sale would reduce the Government holding from 78.92 per cent to 64.57 per cent.