ONGC, OIL cleared to buy stake in IOC at 10% discount

The government today approved a 10-per cent stake sale in  Indian Oil Corp (IOC) to upstream producers Oil & Natural Gas Commission (ONGC) and Oil India Ltd (OIL) at a discount of 10 per cent, which will fetch about Rs5,300 crore to the exchequer. All three entities in the transaction are state-owned.

"Yes, 10 per cent," petroleum minister Veerappa Moily said when asked if the IOC share sale will happen at a discount to market price.

The sale of 10 a per cent stake or 24.27 crore shares will be through an off-market transaction, with ONGC and OIL buying a 5-per cent stake each.  "The two companies will now work out the deal and the stake sale will happen very shortly. It should be happening in next few days. The government advises the board and the two boards will meet and decide. It will be an off-market deal," petroleum secretary Vivek Rae told reporters after a meeting of the empowered group of ministers (EGoM) on disinvestment.

The EGoM, headed by finance minister P Chidambaram, met today to finalise the price of the share sale. "We expect to raise around Rs5,300 crore from the IOC stake sale," disinvestment secretary Ravi Mathur said.

Shares of IOC were trading at Rs249 in morning trade on the Bombay Stock Exchange, up Rs1.05 apiece, valuing the company at Rs60,456 crore. IOC shares have gained more than Rs37 since 16 January when the EGoM on disinvestment cleared the stake sale in the nation's largest oil retailer through a block deal.

The EGoM had then cleared the stake sale at current market price, plus / minus 1 per cent. ONGC and OIL, however, wrote to the petroleum ministry saying they would each buy a 5 per cent stake in IOC at the six-month average traded price and not at the current rate. The government then decided to offer the IOC shares at 10 per cent discount to current market price to the companies through an off-market deal.

ONGC currently holds an 8.77 per cent stake in IOC.

Although the cabinet had originally cleared the stake sale in IOC through an offer for sale, the finance ministry had to go in for the block deal route after opposition from the petroleum ministry.

The oil ministry had argued that IOC shares should not be sold through an offer for sale as the current price did not reflect the right valuation of the company.