IOC stake sale plan could stretch over pricing tussle

The 10% disinvestment in Indian Oil Corporation (IOC) through a block deal to ONGC and Oil India could be delayed over a pricing tussle.

According to sources, ONGC and Oil India want the 5% stake each of them is set to buy in the oil marketing PSU at a discount of about 20% to the current market price.

The finance ministry’s disinvestment department is sore over this new stand by the upstream oil companies as the cross-holding proposal originally came from these PSUs and their parent ministry. Such discounted purchases, the department feels, would also be not in sync with the relevant Sebi rules.

The two upstream firms have written to the oil ministry about their condition for the purchase of the 24.27 crore shares at the proposed discount to current market price rather than the EGoM-approved rate of the current market price, plus/minus 1% on January 16. The IOC scrips, which has gained about 29% in the last six months, closed at Rs 238.50 each on Tuesday on the BSE. Since January 16, shares of IOC have climbed 22%. The disinvestment ministry is already opposed to the idea as it thinks it is unfair.

“In the first place, the cross-holding idea was suggested by oil ministry. If ONGC and Oil India wanted to buy IOC at a cheaper rate than they should have done the deal immediately after the EGoM gave it their approval. Now to ask for any discount is not fair and should not be allowed,” a finance ministry official said.

For a deal to qualify as a block deal under Sebi norms, a minimum quantity of 5 lakh equity shares or minimum value of Rs 5 crore has to be exchanged at a price range within +1% to -1% of the current market price.

The IOC stake sale had faced hurdles in the beginning as domestic and international investors did not show much interest in the issue, while oil ministry was reluctant to sell stake in IOC as the public sector company had lost over 50% in valuation since 2010.

Finally an amicable decision was reached to sell 10% stake in IOC equally to ONGC and Oil India last month. The deal was expected to happen before the end of January.

The government is expecting Rs 4,800-5,000 crore from the stake sale of IOC. It’s crucial for the government to get the IOC stake sale through before the end of the fiscal to meet its tapered expectation of about Rs 10,000-13,000 crore from disinvestment.