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Oil ministry opposes IOC selloff
NEW DELHI: This is not the time to sell family jewels as you won't get the price. That was the argument the oil ministry forwarded on Wednesday at a secretary-level meeting, suggesting the department of disinvestment needs to pay heed to the rumble on the street and put off disinvestment in Indian Oil.
A ministerial panel is set to decide on the issue on Thursday afternoon since the finance ministryis pushing hard for the sell-off to meet its target of raising Rs 40,000 crore through disinvestment. The oil ministry has already put on record its opposition through an office memo. The memo, first reported by TOI on December 11, lists improper valuation, weakness in the rupee as well as stock market and grey areas in fuel pricing policy as concerns that could spook the sell-off.
The government plans to shed 10% stake through a follow-on public offering. A team of officials from the oil ministry, department of disinvestment and Indian Oil executives held roadshows in the UK, USA, Hong Kong and Singapore to promote the share sale to 84 big investors. Almost all questioned the suitability and timing of the government embarking on disinvestment in a company when valuations were low due to depressed stock prices and uncertain revenue scenario.
Foreign investors also raised concern over rupee depreciation increasing under-recoveries, diminishing profitability, suppressing valuation and a double adverse impact on their equity holdings.
Some estimates put the due to undervaluation, the government's realization could be lower by Rs 4,225 crore from the target seen at the time of announcement in January 2013. At Wednesday's closing price of Rs 195.50, IOC has a market capitalization of Rs 47,466 crore. This M-Cap is after factoring in IOC's 7.69% holding in Oil and Natural Gas Corporation worth Rs 17,9711.78 crore at close.
This leaves a market value of less than Rs 30,000 crore that is attributable to IOC. This is less than the investment that IOC is putting in setting up a 15-million-tonne refinery at Paradip in Odisha, the oil ministry argued.
Oil minister M Veerappa Moily has been steadfast in saying IOC shares can't be sold when the scrip is way lower than the 52-week peak of Rs 375 reached on January 18 last year.
The sale of 19.16 crore IOC shares at the current price would fetch the government less than Rs 3,750 crore. The government holds 78.92% stake in the country's largest oil refiner as on June 30.
