ONGC, OIL pick up 5% each in IOC

Both ONGC and OIL bought 5% each in an off-market deal at Rs 220 per share

State-run Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) have picked up 10 per cent stake in Indian Oil Corporation (IOC) for Rs 5,340 crore, as part of the government’s strategy to meet the divestment target for this financial year.

In an off-market deal, both ONGC and OIL bought five per cent stake each at Rs 220 a share. The price was based on a 10 per cent discount to the stock price of Rs 245 on the day the decision to sell the stake was taken and the three-month average trading price of the IOC stock.

On Friday, IOC shares dropped two per cent to close at Rs 269 a share on the BSE.

There will be no lock-in period for both ONGC and OIL. However, if the companies want to exit within a year, they will have to pay capital gains tax of 33 per cent. IOC’s current market capitalisation is Rs 65,360 crore.

Last month, an empowered group of ministers headed by Finance Minister P Chidambaram had cleared a proposal to sell 242.7 million shares in IOC. To meet its divestment target of Rs 40,000 crore for this financial year, the finance ministry wanted to divest stake in IOC last year. However, the ministry of petroleum and natural gas had objected to selling IOC shares, and this led to a tussle between the two ministries.

Petroleum Minister M Veerappa Moily had raised objections to selling stake at throw-away prices, considering the IOC stock had touched a high of Rs 430 in late 2009. Therefore, the group of ministers had decided to dump the plan to go to the markets and opted for a bulk deal. “Through the off-market deal, we were able to keep the IOC stake with the government,” said a senior petroleum ministry official.

The government’s decision not to go the markets followed five merchant bankers — HSBC, UBS Securities, SBI Capital, J M Financial and Citibank — raising concern after a lukewarm response from foreign markets.

Major international investors such as J P Morgan, Templeton, T Rowe Price, Wellington Management, Aberdeen Asset Management and Schroders had refrained from meeting the IOC team during its international road shows.

Experts say the deal will have a negative impact on ONGC and OIL, already bearing a subsidy burden.

The government also backtracked from hitting the markets after the five merchant bankers - including HSBC, UBS Securities, SBI Capital, J M Financial and Citibank - also raised concerns following a lukeworm response from overseas markets.

Major international investors like J P Morgan, Templeton, T Rowe Price, Wellington Management, Aberdeen Asset Management and Schroders also stayed away from meeting the IOC team during its international roadshows.