Disinvestment process: B M Bansal,
State-owned oil refining and marketing firm IndianOil (IOC) has invited applications from merchant bankers for managing its share sale.
IOC’s follow-on public offer (FPO), under which the government aims to sell a 10% stake in the company, could be the biggest till March.
At current prices, the issue size could be around Rs.20,000 crore.
“We have asked for request for qualification applications for the appointment of book running lead managers,” said chairman B. M. Bansal.
The company will issue new shares equivalent to 10% of its post-issue capital. The last date for submitting the proposals is 12 November. Technical bids will open on the same date.
IOC has a refining capacity of 51.2 million tonnes (mt) and is the leading fuel retailer. Finance minister Pranab Mukherjee has repeatedly said the government wants to bring down India’s fiscal deficit. Enhanced disinvestment proceeds would give it breathing space to step up expenses without resorting to more borrowings, already at a record.
While the Congress-led United Progressive Alliance (UPA) government decided to decontrol petrol prices on 25 June, state-owned oil marketers such as IOC, Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd (BPCL) still sell diesel at the government mandated price.
Oil companies and the government lose thousands of crores of rupees every year from subsidizing fuel prices. The government, however, is not considering freeing diesel prices yet as that would push up retail prices and the already high inflation rate, oil secretary S. Sundareshan said last week at the Economic Editors’ Conference. Wholesale price inflation rose to 8.62% in September from 8.5% in August.
Diesel deregulation is “not possible with the current prices ... diesel deregulation at this juncture will lead to price increase and it is unreasonable to expect it at this juncture,” Sundareshan said. The government expects the cost of selling fuel below cost in the current financial year to be around Rs.52,000 crore. IOC, BPCL and HPCL lost Rs.31,367 crore in revenue in the first half of the financial year on selling diesel, domestic liquefied petroleum gas (LPG) and kerosene at a loss.
Of this revenue loss, upstream oil firms, Oil and Natural Gas Corp. Ltd (ONGC), GAIL India and Oil India Ltd (OIL), will chip in Rs.10,456 crore and around Rs.10,000 crore would come from the government by way of cash compensation. Earlier this year, the government said it would raise Rs.40,000 crore in 2010-11 by selling shares of public sector companies.
Confident that there’s enough liquidity in the market to absorb one big public issue a month, the government plans to sell shares of three large public sector companies—IOC, Steel Authority of India Ltd and ONGC—between January and March. The government proposes to sell shares in seven more companies until March.
Power Grid Corp. of India Ltd’s share sale will come up after Diwali. Public issues of Manganese Ore (India) Ltd, Shipping Corp. of India Ltd and Hindustan Copper Ltd are in the pipeline till December. IOC closed 0.02% up at Rs.422.70 on the Bombay Stock Exchange on Tuesday. The Sensex closed nearly flat at 20,345.69 points.