Govt not to go ahead with OIL stake sale soon

in a scenario when international oil prices have dipped to six-and-half-year low, govt feels OIL will not get the right valuation

After getting LIC to bail out big ticket IOC disinvestment, the government is not likely to sell a 10 per cent stake in Oil India soon as it feels the company will not get a good valuation in current low oil prices.

"Fortunes of an upstream oil and gas producer is directly linked to oil prices. Revenues they earn are directly proportional to prevailing oil prices. So in a scenario when international oil prices have dipped to six-and-half-year low, we don't think OIL will get the right valuation," a senior government official said.

The government had planned to sell 10 per cent shares in OIL, the nation's second biggest state-owned oil producer.

The sale of 6.01 crore shares at current market price will fetch the government Rs 2,813.31 crore, about 10 per cent lower than the February, 2013, divestment of similar number of shares garnering Rs 3,100 crore.

Oil prices have slumped from $115 a barrel last summer to less than $44 now.

"It makes no sense to go ahead with OIL disinvestment in current scenario. I think we will wait for volatility in the oil prices to settle before deciding on a stake sale in OIL," the official said.

Last Monday, government managed to raise Rs 9,379 crore from sale of 10 per cent stake in Indian Oil Corp (IOC), with state-owned LIC picking up 86 per cent of the shares on offer.

"IOC is a downstream oil refining and marketing company whose fortunes are not so much affected by oil prices. We feel IOC disinvestment should have been better but for the freak Monday when global capital markets collapsed," he said.

The official said the government had created the right environment for OIL stake sale by exempting the upstream firms from paying any LPG subsidy as well as limiting their payout to subsidise kerosene.

But slump in oil prices is not helping get good valuations.

Also, the appointment of merchant bankers for the stake sale has been scrapped because of poor response.

SBI Capital Markets, ICICI Securities and Yes Bank were the only three that expressed interest in managing sale of the group of five companies in the 'Basket One', which also included Oil India (OIL), MMTC, Container Corporation of India (Concor) and India Tourism Development Corp (ITDC).

There was no foreign banker who bid for this batch and the DoD would again invite applications from merchant bankers for managing the stake sale of this Basket.