Govt not to go ahead with OIL stake sale soon
2 min read 30 Aug 2015, 12:12 PM ISTOil India may not get a good valuation at current low oil prices
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New Delhi: After getting Life Insurance Corp (LIC) to bail out big ticket Indian Oil Corp (IOC) disinvestment, the government is not likely to sell a 10% stake in Oil India Ltd (OIL) soon as it feels the company will not get a good valuation at current low oil prices.
“Fortunes of an upstream oil and gas producer is directly linked to oil prices. Revenues they earn are directly proportional to prevailing oil prices. So in a scenario when international oil prices have dipped to six-and-half-year low, we don’t think OIL will get the right valuation," a senior government official said.
The government had planned to sell 10% shares in OIL, the nation’s second biggest state-owned oil producer. The sale of 60.10 million shares at current market price will fetch the government ₹ 2,813.31 crore, about 10% lower than the February 2013, divestment of similar number of shares garnering ₹ 3,100 crore.
Oil prices have slumped from $115 a barrel last summer to less than $44 now. “It makes no sense to go ahead with OIL disinvestment in current scenario. I think we will wait for volatility in the oil prices to settle before deciding on a stake sale in OIL," the official said.
Last Monday, government managed to raise ₹ 9,379 crore from sale of 10% stake in IOC, with state-owned LIC picking up 86% of the shares on offer.
“IOC is a downstream oil refining and marketing company whose fortunes are not so much affected by oil prices. We feel IOC disinvestment should have been better but for the freak Monday when global capital markets collapsed," he said.
The official said the government had created the right environment for OIL stake sale by exempting the upstream firms from paying any LPG subsidy as well as limiting their payout to subsidise kerosene. But slump in oil prices is not helping get good valuations. Also, the appointment of merchant bankers for the stake sale has been scrapped because of poor response.
SBI Capital Markets, ICICI Securities and Yes Bank were the only three that expressed interest in managing sale of the group of five companies in the ‘Basket One’, which also included OIL, MMTC, Container Corporation of India (Concor) and India Tourism Development Corp (ITDC). There was no foreign banker who bid for this batch and the DoD would again invite applications from merchant bankers for managing the stake sale of this Basket.
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