Diesel decontrol lits up oil companies' divestment prospects

Diesel decontrol has catalysed the disinvestment programme as the government has raised the valuation of the 10% stake sale in Oil India (OIL), planned this month, by 20% to Rs 3,200 crore and brightened the prospects of a mega-issue of Indian Oil Corp (IOC) next fiscal.

The empowered Group of Ministers (EGoM) is expected to meet this week to finalise the floor price for OIL issue that is planned for January 30. Oil India was earlier estimated to raise 2,650 crore but the decontrol of diesel, which will reduce the heavy subsidy burden on state exploration firms has hoisted Oil India's shares by 16% in the last two trading sessions.

The government is also planning to start the road show for 12,500-crore share sale of NTPC. "After the NTPC result on Monday, officials and bankers are going to start its road show. We are aiming to complete this transaction in the second week of February," said an official involved with the issue.

With the sharp appreciation in the share price of oil explorers and marketers after the diesel price decontrol, the government is likely to restart the share sale process in Indian Oil Corporation early next year.

In 2010, the government had decided to pare down 10% stake in Indian Oil from the its holding of 78.92% through a follow-on offer route, which was put on hold due to poor market condition.

"The floor price for the offer for sale of 10% stake in Oil India is expected to be at around 5% discount to the prevailing market price of January 24," a senior government official with direct knowledge of the matter said.

"Since Oil India share price has gained 16% in the last two trading sessions, government mobilisation will increase by 500-600 crore from this transaction alone," the government officials said. The government can now mop up around 3,200 crore even after 5% discount to last closing price of 561 per share on Friday, bankers said.

The government has allowed oil firms to raise diesel prices in small doses and gradually align it with market rates, which is a major reform, and it would further unlock stock values of state-run oil companies, officials said.

"We expect IOC to hit the market in the next fiscal year and fetch good money as oil stocks will be bullish," one official said. Earlier, the oil ministry had expressed its reservation against minority sale of government's equity in oil marketing companies because the market did not reflect their true value due to subsidy issues.

"Stock prices of companies such as IOC, BPCL and HPCL would jump further if the government resolves subsidy-sharing issues. It is possible after diesel price reforms because main subsidy burden was due to diesel," the official said. Out of the estimated 163,000-crore revenue loss in 2012-13, diesel's share is over 90,000 crore.


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