LIC rescues IOC stake sale amid market meltdown

Mumbai: The government managed to garner ₹ 9,379 crore from the sale of 10% of its stake in Indian Oil Corp. Ltd on Monday as domestic institutional investors bailed out the disinvestment while retail buyers stayed away amid a rout on the stock market.

With most investors turning sellers on Monday, the government had to depend on Life Insurance Corp. of India (LIC) to help the Indian Oil issue sail through, said two people aware of the development.

“LIC has bought a significant stake in the Indian Oil issue,” said the head of a brokerage firm, requesting anonymity. Mint could not ascertain the exact amount of stake picked up by the state-owned insurer.

The issue didn’t see too much interest from foreign institutional investors, said the second person, an investment banker involved in the issue, also on condition of anonymity.

“The majority of the issue was subscribed by domestic institutions. As the mandate for the share sale was awarded very recently, no roadshows were held. On Friday, the management had held a teleconference with interested investors to share updates on the company,” he said.

Disinvestment secretary Aradhana Johri said it was a very difficult day. “Still we are happy to have got the value despite huge volatility,” she added.

Johri said the government did not expect a global meltdown on Monday. “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.

Asked whether calls were made to LIC and government-owned banks to buy the offer for sale (OFS), Johri said calls were made to all potential investors, including retail investor associations.

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.

Johri said retail investors have gone by market sentiments and not done real calculations. “They would have still gained given the stock closed at 378 while it was offered at 368 to retail investors after 5% discount,” she said.

At 3.30pm, the OFS of 10% of government stake in Indian Oil was subscribed just 1.18 times, powered by institutional investors who subscribed 1.43 times. Retail subscription was just 0.18.

India’s stock market benchmark Sensex closed down almost 1,624.51 points, or 5.94%, on Monday, joining a global sell-off triggered by the Chinese stock market rout.

“The market crash has definitely impacted the Indian Oil share sale,” said an investment banker involved in the issue. He did not want to be named.

According to another investment banker, demand was weak due to the market crash and the stock was trading below the issue’s floor price of the issue. “Investors would not want to buy at a higher price when they can buy the shares from the market at a cheaper price,” he said, requesting anonymity.

Indian Oil shares closed the day at ₹ 378.25, down 4.11% on BSE. The floor price for the share sale was set at ₹ 387. The share sale was supposed to fetch the government almost ₹ 9,400 crore at the floor price.

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.

This is the fourth divestment by the government this fiscal year and the second this month. 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.

On Friday, the government raised ₹ 53.4 crore from the divestment of its stake in Dredging Corp., 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.

Receipts from divestment have been estimated at ₹ 41,000 crore this year. Also, 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.

Ami Shah contributed to the story.