New Delhi: State-run refiner, Indian Oil Corp, wants the government to free up diesel prices before its $2-billion-plus share sale to raise the maximum funds from the offer, the company’s chairman said on Monday.
The sale of a 10% stake by the government, along with the firm’s plan to sell an additional 10% of fresh shares, should come in January or February, B M Bansal told Reuters. New Delhi now holds 78.92% in IOC, which is India’s biggest fuel retailer, with a market value of $22.5 billion.
In June, India gave autonomy to oil firms to set petrol prices and raised prices of diesel, kerosene and cooking gas. It also decided to free up diesel prices but gave no time frame to implement the decision.
“We hope the government will deregulate diesel prices before the FPO (follow-on public offer),” Bansal told Reuters. “It will help a better valuation.”
The oil ministry has approved the sale of a 5% stake in Oil and Natural Gas Co. (ONGC) and 10% in IOC. It has also allowed IOC to raise funds through sale of an additional 10% of the expanded share capital.
Bansal said IOC aimed to raise about Rs10,000 billion crore (about $2.2 billion) through the share sale, and wants to appoint a lead manager for the planned issue in November.
“We have to take board approval and then shareholders’ approval for the shares sale,” he said. “Then we have to appoint lead managers for the issue. I think we should be in a position to launch the FPO in January-February.”
Oil secretary, S Sundareshan, recently said the government would take a view on freeing up diesel prices before the share sale of IOC and ONGC.
“This is a rare window of opportunity to fix anomalies in diesel pricing,” Bansal added. “Growth in the inflation rate is softening and global crude oil prices are somewhat stable ... this is the right time.”
IOC’s current revenue loss on the sale of a litre of diesel is Rs2, or about 5% below its desired market price.
India’s wholesale price index (WPI) rose 8.5% in August compared with 9.8% in July after a change in the basket used as a basis for calculations, and the government expects the inflation rate to soften to 6% by December.
US crude for October, which expires on Tuesday, added 5 cents to $73.71 a barrel by 0832 GMT, while ICE Brent for November rose 3 cents to $78.18.
Bearing revenue losses on fuel sales at state-mandated prices has cost IOC dear.
In the June quarter, it posted a net loss of Rs3,388 crore despite a discount of Rs3,671 croere it got on crude and product purchases from ONGC, Oil India and GAIL (India).
The government plans to sell part of its stakes in about 60 firms over the next few years, as it moves to cut a stubbornly high fiscal deficit and garner funds to spend on schemes for the poor.
IOC, which controls about 28% of India’s refining capacity, plans to use its share sale proceeds to get into the nuclear power business, build petrochemical plants and set up a 2.5 million tonne a year liquefied natural gas plant at Ennore in the southern state of Tamil Nadu.
Its huge fuel sale losses have already prompted a hold on its Paradip petrochemical project in eastern Orissa state.
Bansal said the Paradip plant might cost about Rs15,000 crore, while the LNG plant could cost Rs3,000 crore. The LNG plant could be operational by 2014, he said.
“We are working out the details. The final cost and capacity of the two plants will be known after a detailed feasibility report,” he said.