The Petroleum Ministry has opposed the disinvestment of government stake in Indian Oil Corporation (IOC) in current market conditions, saying the country’s crown jewels cannot be sold at low prices.
IOC shares, which traded at Rs. 206 on the BSE in the afternoon, are 45 per cent below their 52-week peak of Rs. 375 reached on January 18.
“I feel it is not the right time (for disinvestment) but Finance Ministry and Department of Disinvestment are keen to go ahead,” Oil Secretary Vivek Rae told reporters in New Delhi.
The Department of Disinvestment (DoD), which is looking at mopping up Rs. 40,000 crore from the sale of shares in public sector units this fiscal, has raised about Rs. 1,325 crore so far. It plans to start a three-nation roadshow from October 6 to attract foreign investors for the IOC stake sale.
The sale of 19.16 crore IOC shares at the current price would fetch the government about Rs. 4,000 crore. The government held a 78.92 per cent stake in the country’s largest oil refiner as of June 30.
Mr. Rae said his ministry favours calling off the roadshows because “if the timing is not right for disinvestment, what is the point of having roadshows?”
“They have their own target for disinvestment. We cannot at the same time sell an IOC share at Rs. 200,” he said. “You have to balance out the need for mobilising Rs. 40,000 crore from disinvestment along with the fact that you cannot sell your crown jewels at low prices.”
Citibank, HSBC and UBS Securities are among the five merchant bankers selected to manage the IOC share sale.
Mr. Rae said the issue will be decided by Finance Minister P. Chidambaram and Oil Minister M. Veerappa Moily.
He said that the IOC Chairman R.S. Butola too had cautioned the timing was not right due to the “prevailing uncertain environment”.
A share sale under present conditions could fetch a low price and would further dent IOC’s efforts to raise loans for crude oil imports.
“Current share price of IOC, already undervalued, may not fetch the fair value in the prevailing uncertain environment and investors in all probability are likely to factor in huge discount in their assessment of share price,” Mr. Butola wrote to the Oil Ministry last week.
IOC, he wrote, was of the “strong view that the current timing of the disinvestment is not in the interest of all stakeholders.”
Mr. Butola said investors are concerned about uncertainties such as lack of a transparent subsidy-sharing mechanism, fluctuation in profitability and liquidity constraints.