After much speculation, the Government has managed to finalise divestment of its stake in Indian Oil Corporation (IOC) by giving it out to two other state-owned entities namely ONGC and Oil India ltd (OIl), through which it aims to rake in Rs 4,500 crore, slightly down from the originally planned Rs 5,000 crore. The stake sale is likely to take place next week.
An empowered Group of Ministers (eGoM) on Thursday approved sale of Government’s 10 stake in IOC to the two PSUs. This was done as the Petroleum Ministry was against selling the stake in the stock market owing to poor market conditions.
The 10 per cent Government stake is likely to be split equally between ONGC and OIl.The decision to sell IOC stake to ONGC and OIl was also taken as the road shows conducted by the Government a few months for the country’s largest retailer’s divestment in South-east Asia had evoked extremely poor responses.
The eGoM headed by Finance Minister P Chidambaram, 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),” Petroleum Minister M Veerappa Moily told reporters after the eGoM meeting.
Sudhir Vasudeva, Chairman and ONGC, which already holds 8.77 per cent stake in IOC, said that “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 Rs 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,” Petroleum Secretary Vivek Rae said.
“Boards of two companies have to now meet to pass a resolution,” he added.He said there will be no lock-in period and both ONGC and OIl would be free to encash their shares anytime.