The government may sell 10% stake in Indian Oil Corporation (IOC) by August as market sentiment on the stock has improved considerably, with stable crude prices and timely receipt of fuel subsidy boosting the financials of the state-run oil retailer.
At current market prices, the government could raise about Rs 10,000 crore from the stake sale. Wednesday’s closing price of the IOC stock was about Rs 420 on the BSE, 13% more than the when the Narendra Modi government came to power on May 26 last year.
After IOC, the government could sell a 3% stake in another fuel retailer, Bharat Petroleum Corporation Ltd (BPCL), to garner about Rs 1,880 crore at current prices. The BPCL share price was Rs 867 on Wednesday, a rise of 56% since May 26 last year.
“We expect Indian refineries to improve refining margins as they increase their ability to process complex crude; a stable oil price level will also help remove inventory impact,” said Kumar Manish and Alok Deshpande of HSBC Securities and Capital Markets (India).
Despite missing disinvestment targets in the last five years by a wide margin, the government has set the FY16 target at R69,500 crore, of which R41,000 crore would come from small stake sales in a clutch of public sector undertakings (PSUs). The remaining R28,500 crore would be raised from ‘strategic disinvestment’ that includes the sale of residual government stake in some private companies including Hindustan Zinc and Balco, privatisation of some loss-making as well as profit-making PSUs and the sale of a portion of SUUTI (Specified Undertaking of Unit Trust of India) stakes in companies, namely Axis Bank, ITC and Larsen and Toubro (L&T).
Had the share prices of upstream oil companies not fallen, the government could have garnered more than half of Rs 41,000 crore from stake sales alone in ONGC and IOC.
The government is going slow on the plan to sell a 5% stake in oil explorer ONGC and 10% in Oil India. The share price of ONGC has fallen by 26% while Oil India’s has fallen by 30% since May 26 last year, due to continued concerns on the Centre’s ad-hoc subsidy sharing formula. However, as reported by FE, the subsidy burden on ONGC will be much lower than last year this fiscal, thanks to the decontrol of diesel, direct benefit transfer for LPG subsidy and the government’s commitment to bear a larger part of the subsidy onus.
So far this year, the government has managed to raise only R1,610 crore via disinvestment — by selling a 5% stake in the Rural Electrification Corporation (REC) in April. No other share sale has taken place, mainly due to volatility in the stock market at regular intervals.
The government has built a pipeline of about 20 companies in which it would sell small stakes ranging from 3% to 15%, depending on how the individual stocks and stock markets are performing.