India mulls cutting stake in Indian Oil to below 51%

By Siddhartha Singh and Debjit Chakraborty

India plans to reduce its stake in Indian Oil Corp. to below 51% while ensuring the government and state-run companies retain control of the nation’s largest oil refiner, people with knowledge of the matter said.

Prime Minister Narendra Modi’s cabinet will consider, as early as next week, a proposal to sell shares in some companies, including Indian Oil, to below 51%, the people said, asking not to be identified as the plan is not public. India directly holds 51.5% in Indian Oil, and another 25.9% through state-run Life Insurance Corp. of India, and explorers Oil & Natural Gas Corp. and Oil India Ltd.

Sluggish revenue collections has left Modi’s administration with little choice but to push ahead with a plan to raise a record 1.05 trillion rupees ($14.6 billion) through asset sales in the financial year through March. A slippage will put the government’s goal of capping its budget deficit at 3.3% of gross domestic product at risk, and prompt rating companies to put India’s credit score on a path for a downgrade to junk.

Government can sell as much as 26.4% its holding in Indian Oil -- valued at about 330 billion rupees -- and still retain indirect control. Finance ministry spokesman Rajesh Malhotra could not be immediately reached for a comment.

The South Asian nation is likely to start selling shares in Indian Oil through an exchange-traded fund in January, according to the people. The ministers’ panel is also expected to take up other crucial proposals such as privatization of Bharat Petroleum Corp., Shipping Corp. of India and Container Corp. of India, they said.

Finance Minister Nirmala Sitharaman, in her budget speech, announced plan to lower direct holdings in some state-run companies below 51% on a “case-to-case basis.” The government later identified the biggest energy companies such as Indian Oil, ONGC, NTPC Ltd. and GAIL India Ltd. as probable candidates for such reductions.

Shares of Indian Oil surged more than 6%, reversing losses. It ended 2.2% higher at 136.85 rupees in Mumbai.

“This move will only benefit the government,” said Deven Choksey, managing director of Mumbai-based wealth manager and brokerage K.R. Choksey Shares and Securities Pvt. “This won’t add any value for the retail investors or the company.”

Indian Oil, along with its unit Chennai Petroleum Corp., operates 11 refineries, controlling more than 35% of the nation’s total crude oil processing capacity. It’s also India’s biggest fuel retailer, owning about half the country’s refilling stations.