After the carrying out a 5% stake sale each in three small PSUs so far in FY16, including in Dredging Corporation on Friday, the government accelerated the disinvestment process further by announcing a 10% stake sale in Indian Oil Corporation (IOC). The disinvestment in the oil marketing company, slated for Monday, would fetch over R9,600 crore at current market prices. Post the offer, the government’s stake in the firm would drop to 58.57%.
The government would sell 24.27 crore shares in IOC through the offer for sale (OFS) route. Of this, 20% has been reserved for retail investors, disinvestment secretary secretary Aradhana Johri said. The floor price for the IOC stake sale would be announced on Saturday. “Bankers have informed that there is an excellent appetite among investors for the stock,” Johri said.
The IOC stake sale was slated for the first week of August, which would have fetched R700 crore more than the current estimates. However, the Centre had not appointed financial advisers for the sale and the process got delayed by a couple of weeks. Citigroup, Deutsche, Nomura, JM Financial and Kotak Investment Banking are advising the government on the IOC disinvestment.
IOC reported a 2.5-fold jump in its net profit during April-June of FY16 at Rs 6,436 crore against R2,523 crore in the same period
a year earlier. The higher profit is on account of seven-year-high refining margins, which resulted because of inventory gains.
The market sentiment on the IOC stock has improved in recent months with stable crude prices and timely receipt of fuel subsidy boosting the financials of the state-run oil retailer.
The IOC stock closed 0.7% down at R394.45 on Friday while the benchmark S&P BSE Sensex fell 0.88%, tracking a global sell-off and rupee weakness.
The government’s 5% stake sale on Friday in Dredging Corporation through the OFS mechanism was subscribed 11 times by retail investors and 1.65 times by institutional investors. Of the total issue size, 10% was reserved for retail investors. Bids worth R142 crore were received for shares worth Rs 53 crore, which means the entire issue was oversubscribed 2.65 times.
The Dredging Corporation issue was the third PSU disinvestment so far this year, after the government sold 5% each in Rural Electrification Corporation and Power Finance Corporation, raising in total about R3,330 core.
The latest disinvestment despite volatile market conditions has encouraged the department of disinvestment to try to offload stakes at small windows of opportunities in as many companies as possible this year to achieve the ambitious disinvestment target of R69,500 crore for this fiscal year.
“We have a robust pipeline of stocks for disinvestment and would time each share sale depending on the market conditions for the stocks,” Johri said. The government has lined up about 20 companies, including Coal India, billed to be a mega-share sale as it alone could fetch more than half of the Rs 41,000 crore planned through disinvestments in PSUs in FY16. Other PSUs lined up include Bharat Petroleum Corporation, NTPC and NMDC. Johri said a fresh round of roadshows for disinvestment in PSUs would be held beginning in September.
IOC’s stake sale is the third PSU disinvestment after rule changes by the 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 speculators to beat down the share price of the disinvestment-bound PSUs.