IOC share sale to ONGC, OIL for Rs 5k cr gets nod

OIL sitting on cash pile of Rs 8,000 cr

In the first disinvestment through block deal this fiscal, a ministerial panel on Thursday approved selling 10 per cent government stake in Indian Oil Corp (IOC) to ONGC and OIL to rake in Rs 4,800-5,000 crore.

With Oil Ministry continuing to be opposed to selling IOC shares on stock market like other disinvestments, an Empowered Group of Ministers 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. 

“In-principle we have taken a decision for a block deal. Modalities will be worked out (soon),” Oil Minister M Veerappa Moily told reporters after the 35-minute meeting.

The stake sale will happen sometime next week after the boards of ONGC and OIL decide, Oil Secretary Vivek Rae said.

Sudhir Vasudeva, Chairman and ONGC, which already holds 8.77 per cent stake in IOC, said “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 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,” Rae said. The sale will be as per SEBI’s rules for block deal which says the rate should be one per cent higher or lower than previous day’s closing price, he said. “Boards of two companies have to now meet to pass a resolution,” he added.

“We had wanted that there should be no lock-in period (for selling off the shares) and I think the EGoM has agreed to this. And this meets our concern,” Vasudeva said.

In 2006, IOC sold 1.92 per cent, or a fifth of its holdings in ONGC for Rs 3,672 crore, recovering its entire initial investment and some more. It also sold half its holdings (2.41 per cent) in GAIL for Rs 561 crore.

The EGoM on January 9, 2013 deferred disinvestment of 10 per cent stake in IOC through an offer for sale on the stock markets owing to strong opposition from oil ministry.