A ministerial panel on Thursday decided that the proposed stake sale in IndianOil Corporation will be done through the cross-holding method, where other Central public sector enterprises will buy the Government’s shares on offer in the oil refiner.
The general public and financial institutions will not get to buy shares under this route.
Oil and Natural Gas Corp (ONGC) and Oil India Ltd will meet within a week to consider buying a stake in IndianOil. The Government proposes to offload 10 per cent in the company and garner Rs 4,800-5,000 crore to meet its divestment target.
Petroleum and Natural Gas Minister M. Veerappa Moily said after the empowered Group of Ministers (eGoM) meeting, chaired by Finance Minister P. Chidambaram, that an ‘in-principle’ approval for the stake sale through cross holdings has been given. This route is proposed in lieu of the auction method (offer for sale through stock exchanges), which was opposed by the Petroleum Ministry.
Vivek Rae, Secretary to the Petroleum and Natural Gas Ministry, told reporters the ministerial panel has agreed on the block deal, while the “modalities (on the percentage to be sold to nominated CPSEs) are to be worked out.” He added “most probably”, ONGC and Oil India will pick up the stake.
“ONGC and Oil India will buy IndianOil shares at a 1 per cent discount to the previous day’s closing price,” said Rae, adding the transaction is likely to take place within a week or so.
On Thursday, IndianOil shares closed at Rs 212.05 on BSE, with a gain of 1.48 per cent, while the ONGC scrip shed 1.48 per cent to close at Rs 287. Oil India closed at Rs 477.40 after losing 0.55 per cent.
The options under consideration were: Oil India and ONGC buying 7 and 3 per cent, respectively, or 5 per cent each of the shares. Both the companies will use part of their cash reserves to buy the Government’s stake.
As on September 30, 2013, ONGC had a cash reserve of Rs 19,560 crore while Oil India had Rs 12,490 crore.
There will be no lock-in period for the shares, if transferred through the proposed route. It means that the investors can sell the shares any time.
Talking about the rationale behind the block deal, Rae said: “We feel that IndianOil’s shares are grossly under-priced. The block deal will help boost the stock price.”
IndianOil’s stock price has fallen almost by half in the past five years and any further offloading in the market would depress the price further.
shishir.s@thehindu.co.in