Amid a crash in the stock market on Monday and the Sensex plummeting 1,624.51 points, Indian Oil Corporation’s offer for sale (OFS) received a tepid response from foreign institutions and retail investors and was reportedly bailed out by Life Insurance Corporation (LIC). The government sold 10% of the equity capital of the oil refiner at a floor price of Rs 387 per share, mopping up more than Rs 11,000 crore, with the issue subscribed 1.18 times.
The state-owned life insurer is understood to have acquired a “substantial” portion in the Rs 9,500-crore IOC issue, estimated at Rs 4,500 crore, based on a provisional assessment of bids. A top LIC official confirmed the insurer’s participation without divulging the quantum of shares purchased. Some large public sector banks, domestic insurance companies and mutual funds also acquired shares in the offer, they confirmed to FE.
The disinvestment department said institutional bids came in for an amount of Rs 10,780.21 crore while retail interest totalled Rs 344 crore despite hugely adverse market conditions. “I don’t want to get into hypothetical situations. Calls are made to all investors, by us and by our merchant bankers, and to every actor,” Aradhana Johri, secretary, disinvestment, said.
After Monday’s stake sale, the government’s tally from selling minority stake in public sector companies will stand at nearly Rs 13,000 crore against the FY16 target of Rs 69,500 crore.
Stock exchange data showed the non-retail book comprising institutional investors and high net-worth individuals bid for 27.85 crore shares against 19.42 crore shares on offer. The book was subscribed 1.43 times with a large portion of the bids coming from domestic institutional investors. The retail book was subscribed just 0.18 times.
As against 4.85 crore shares reserved for the category, retail investors bid for 88.87 lakh shares even as they were entitled to get a 5% discount to the bidding price, data showed.
IOC shares declined 4.11% or Rs 16.20 to settle at Rs 378.25 apiece, while stocks of other refiners and energy companies fell even more with some hitting 52-week lows. On Saturday, the government set the floor price for the IOC stake sale at Rs 387 per share, a 1.9% discount to Friday’s closing price of Rs 394.45. Post the stake sale the government’s holding will drop to 58.57%.
IOC’s secondary market transaction was the fourth-largest OFS of all time. The Centre had raised Rs 22,557.63 crore by selling 10% in Coal India in January 2015. The central exchequer had earlier garnered Rs 12,749.50 crore from ONGC in March 2012 and Rs 11,457.54 crore from NTPC in February 2013.
The department of disinvestment (DoD) had appointed five merchant bankers — Citigroup, Deutsche, Nomura, JM Financial and Kotak Investment Banking — to manage the IOC stake sale.
IOC’s stake sale is the third PSU disinvestment after the rule changes by Securities and Exchange Board of India in June 2015. The capital markets regulator allowed companies to disclose their OFS plans two banking days in advance instead of two trading days before launching an OFS.
The change in rules was introduced to reduce the gap between the disclosure of the OFS and the actual share sale, and limit the scope for the speculators to beat down the share price of the disinvestment-bound PSUs.
Also, Monday’s stake sale in IOC will be the second in three years and the fifth sale by the government after it first divested stake in the state-owned refiner in FY1995 — the then largest disinvestment offering of Rs 1,000-odd crore.
In March 2014, state-owned ONGC and Oil India (OIL) picked up 5% each from the government for a total sum of Rs 5,341 crore. The disinvestment was completed in an off-market transaction as the ministry of petroleum and natural gas opposed the OFS, stating IOC’s share price prevailing at that time did not reflect the right valuation of the company.
In addition, the DoD has also proposed to conduct a follow-on offer in CPSE ETF. Previous year, the government had set a target of Rs 63,425 crore which was revised down to Rs 36,925 crore, but managed to raise only Rs 24,277 crore, DoD data showed.