LIC picked up almost 86% of IOC issue
3 min read 26 Aug 2015, 12:15 AM ISTState-run insurer has been govt's go-to institution whenever investors stay away from a disinvestment
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New Delhi: When most investors in the market turned sellers on Monday, Life Insurance Corp. of India (LIC) stepped in and salvaged Indian Oil Corp. Ltd’s (IOC) offer for sale by buying almost 208.7 million shares, or almost 86% of the issue size, according to the firm’s exchange filing on Tuesday.
IOC had on Monday put on sale almost 242.9 million shares through the offer. LIC has increased its stake in IOC to 11.1% from 2.52%, the filing shows. The government had to depend on LIC to help the issuance sail through.
BSE’s benchmark Sensex fell 5.94% on Monday, joining a global sell-off triggered by the Chinese stock market rout.
At market close, the issue was subscribed 1.18 times, with institutional investor category seeing subscription of 1.48 times. Negative market sentiment kept retail investors away from the issue. The retail portion was subscribed only 0.18 times.
“LIC has shopped wisely. Today, the stock has closed higher than the issue floor price of ₹ 387, and that is after the carnage we saw in the market yesterday," said an investment banker involved in the issue, requesting anonymity. On Tuesday, Indian Oil shares rose 4.36% to ₹ 394.75 on BSE.
LIC has always been the government’s go-to institution when share sales of government firms have found it hard to woo investors.
In January, LIC had also helped the ₹ 22,600 crore offer for sale by Coal India Ltd sail through the markets by picking up a significant stake.
Last year, LIC saved Steel Authority of India Ltd’s share sale by picking up almost 72% of the firm’s offer. Also in 2014, Bharat Heavy Electricals Ltd had to depend on the insurance firm to salvage its almost ₹ 1,900 crore share sale.
On Monday, disinvestment secretary Aradhana Johri said the government did not expect a global meltdown on the day of the IOC issue. “If the assessment had been that there would be a global meltdown, then naturally you don’t enter the market with that information," she said.
Johri said though volatility has increased in recent times, the government will look for opportunities for further divestment. “We have to rethink our strategy. Basically, we have to look at which are the stocks we need to put on the market and where the appetite in the market lies," she said.
Citigroup Global Markets India Pvt. Ltd, JM Financial Institutional Securities Ltd, Deutsche Equities India Pvt. Ltd, Kotak Mahindra Capital Co. Ltd and Nomura Financial Advisory and Securities (India) Pvt. Ltd managed the issue. The bankers were selected by the government on 12 August, Mint reported.
IOC’s was the fourth divestment by the government this fiscal year. The government managed to raise ₹ 9,379 crore through the share sale.
Earlier, it had divested part of its stakes in Rural Electrification Corp. Ltd (REC), Power Finance Corp. Ltd (PFC) and Dredging Corp. of India Ltd.
Last week, the government raised ₹ 53.4 crore by divesting its stake in Dredging Corp. of India, while the PFC stake sale raised ₹ 1,600 crore last month and the REC sale raised ₹ 1,610 crore in April.
The government is also looking to appoint bankers for divesting a 10% stake in Coal India Ltd, which could fetch it up to ₹ 23,000 crore.
Bankers have also been appointed for the sale of stakes in NTPC Ltd, Bharat Electronics Ltd, Engineers India Ltd, National Aluminium Co. Ltd and Hindustan Copper Ltd.
The receipts from divestment have been estimated at ₹ 41,000 crore this year. Also, an additional resource mobilization of ₹ 28,500 crore has been estimated from strategic divestments to meet revenue shortfall.
In 2014-15, the government had set a target of ₹ 63,425 crore from stake sales, of which it collected only ₹ 31,350 crore, including ₹ 5,000 crore from the sale of special drawing rights to the Reserve Bank of India.
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