Decision on IOC stake sale deferred

An empowered group of ministers led by Finance Minister P Chidamabaram on Thursday deferred a decision on the divestment of Indian Oil Corporation (IOC), after stiff opposition from the petroleum ministry.

Sources said the stake sale was now likely only in the next financial year. “It has been deffered,” Petroleum minister M Veerappa Moily told the media after the EGoM meeting.

At an inter-ministerial group on Wednesday, the petroleum ministry had objected to the divestment now, as IOC shares were at “a five-year low”.

“We highlighted the finance ministry that the shares of IOC closed at Rs 195.5 on Wednesday at a five year low. If you give a 10% discount to this, the divestment prices would even be below the all-time low. Stocks took a beating because of the lack of clarity from the part of finance ministry regarding issues like export parity pricing and also subsidy sharing. We want them to have clarity in this regard before going for a stake sale,” an official source close to the development told Business Standard.

This comes a day after Moily indicating that he is against giving IOC shares at a throw-away price. The ministry of petroleum had raised its concerns against going for dis-investment thrice in the last two months, following a lukewarm response from the investors after the overseas and domestic roadshows.

The company’s shares closed at Rs 198.95 on Bombay Stock Exchange today, with its market capitalisation standing at Rs 48,304 crore. The department of disinvestment had already fixed five merchant bankers — including HSBC, UBS Securities, SBI Capital, J M Financial and Citibank — to manage the stake sale process.

However, the international and domestic roadshows for divestment saw minimal response from investors. “We told them that if EPP is implemented in place of trade parity pricing, IOC’s gross refining marging would suffer by $2.3 per barrel.” During the international roadshows, major funds like J P Morgan, Templeton, T Rowe Price, Wellington Management, Aberdeen Asset Management and Schroders refused to meet the IOC team or did not show any interest on IOC. IOC too had raised it objections to the finance ministry in this regard. The finance ministry was targeting Rs 4,500 crore by selling 10% stake in IOC, in order to meet its disinvestment target of Rs 40,000 crore.  

While the export parity price is the benchmark free-on-board price of the products, import parity pricing includes import duty and various expenses such as freight and insurance incurred to import products to Indian ports. Though a committee led by Kirit Parikh had said no to implementation of EPP, finance ministry wants it to be implemented.