New Delhi, Jan 16 (PTI) In the first disinvestment through block deal this fiscal, a ministerial panel today approved selling 10 per cent government stake in Indian Oil Corp (IOC) to ONGC and OIL to rake in Rs 4,800-5,000 crore.
With Oil Ministry continuing to be opposed to selling IOC shares on stock market like other disinvestments, an Empowered Group of Ministers headed by Finance Minister P Chidambaram today decided to sell 24.27 crore shares or 10 per cent government stake in the company to Oil and Natural Gas Corp (ONGC) and Oil India Ltd.
"In-principle we have taken a decision for a block deal. Modalities will be worked out (soon)," Oil Minister M Veerappa Moily told reporters after the 35-minute meeting.
The stake sale will happen sometime next week after the boards of ONGC and OIL decide, Oil Secretary Vivek Rae said.
Sudhir Vasudeva, Chairman and ONGC, which already holds 8.77 per cent stake in IOC, said "most likely" the 10 per cent stake will be split equally between ONGC and OIL.
"The 5 per cent stake will cost us Rs 2,200 to 2,300 crore and this amount will not have any bearing on our capital expenditure plans," he said.
OIL 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. And it commands more value. Normally, we would not want to do a block deal (but since share price is low) we thought we should follow this route which would enable revenues to be raised," Rae said.
IOC scrip closed 1.48 per cent up at Rs 212.05 on BSE.
The sale will be as per SEBI's rules for block deal which says the rate should be one per cent higher or lower than previous day's closing price, he said. "Boards of two companies have to now meet to pass a resolution," he added.
Rae said there will be no lock-in period and both ONGC and OIL would be free to encash their shares anytime.
"We had wanted that there should be no lock-in period (for selling off the shares) and I think the EGoM has agreed to this. And this meets our concern," Vasudeva said.
Government in the past too had resorted to such block deals to shore up its revenues. In late 1990s, the government had sold shares in ONGC, GAIL and IOC to raise Rs 4,643 crore.
According to the cross-holding plan, ONGC bought 9.11 per cent in IOC and 4.83 per cent in GAIL. IOC bought 9.61 per cent in ONGC and 4.83 per cent in GAIL. GAIL in turn bought 2.4 per cent in ONGC.
In 2006, IOC sold 1.92 per cent, or a fifth of its holdings in ONGC for Rs 3,672 crore, recovering its entire initial investment and some more. It also sold half its holdings (2.41 per cent) in GAIL for Rs 561 crore.
The EGoM on January 9, 2013 deferred disinvestment of 10 per cent stake in IOC through an offer for sale on the stock markets owing to strong opposition from oil ministry.
The ministry felt IOC shares were way lower than the 52-week peak of Rs 375 reached on January 18 last year.
The Finance Ministry had planned to sell 24.27 crore IOC shares to meet a tenth of its Rs 40,000 crore disinvestment target for current fiscal. Government holds 78.92 per cent stake in oil refiner IOC as on June 30. PTI JD ANZ KSR 01161706
India approves 10 pct IOC stake sale to state oil firms
An Empowered Group of Ministers (EGoM), headed by Finance
Minister P Chidambaram, has approved sale of a 10 per cent stake in state refiner Indian Oil Corp through a block deal on the stock exchanges, Oil Minister Veerappa Moily said on Thursday.
State exploration firms Oil & Natural Gas Corp (ONGC) and
Oil India Ltd will buy the stake, Oil Secretary Vivek Rae said.
The transaction is likely "within the next week or so," Rae said.
The deal will be through a block deal on the stock exchanges, Oil Minister Veerappa Moily told reporters.
The government, which has a 79 percent stake in IOC, expects to garner between 48 billion to 50 billion rupees ($812 million), Rae said.
New Delhi has been pushing for the sale of the IOC stake, along with a 5 percent stake in miner Coal India, for months and had even organised roadshows for overseas investors, but disagreements among ministries and a depreciation in the rupee stymied the efforts.
The stake sales are part of a plan to raise $6.4 billion this fiscal year through divestments in state firms, but so far the government has only raised around $500 million through this route.
India's slowing economy and rising subsidies on food and fuels have pushed the government into a corner, with the fiscal deficit for the April-November period rising to $82.3 billion, or nearly 94 percent of the full-year target.
Earlier this week, Coal India agreed to pay a surprisingly large interim dividend of 29 rupees a share, that will amount to $2.7 billion for the government's 90 percent stake in the company.
The modalities of the IOC stake sale are being worked out, and the boards of ONGC and Oil India will decide on who will buy how much, oil secretary Rae said. The decision will depend on how much cash each company holds.
ONGC will be comfortable buying up to 5 percent stake in IOC, its chairman Sudhir Vasudeva told televsion channel ET Now.
Ahead of the announcement, shares in IOC closed 1.3 percent higher at 212.25 rupees in a flat Mumbai market. ONGC and Oil India shares ended down 1.7 percent and 0.8 percent respectively.