Taking a cue from the lukewarm response to the recent roadshows abroad for Indian Oil Corporation’s (IOC) 10% stake sale, existing domestic investors in the company have questioned the timing of the offer, reports Pranav Nambiar in New Delhi. The clamour to postpone the divestment by domestic investors who fear “losses” from the sharp plunge in the stock price since the sale was first planned three years ago comes on top of similar concerns raised by the oil ministry with the department of disinvestment (DoD). Sources said during the roadshows held in Mumbai and Chennai last week, domestic investors expressed the fear that at the current market price, the stock won’t discover its fair value. The investors are worried that the beaten-down prices of the stock could leave them at a (notional) loss. “The timing of the issue is not good as it should ideally be announced after passing reform steps like the diesel price deregulation,” a senior official from one of the fund houses that has invested in the company said. The official said that the stock price stood at around R400 per share in 2010 when the stake sale was first thought of, against Tuesday’s closing price of R211.75.
The domestic institutional investors in the company include UTI AMC, SBI Funds Management, Prudential ICICI AMC, HDFC AMC and L&T Investment Management, among others.
Sources said that some investors feel that if prices fall further to around Rs 180 levels, then the stake sale might invite the wrong kind of investors including hedge funds and speculators who are looking to make a quick buck rather than staying invested over the long term.
Others feel that the current revenue model for IOC is uncertain owing to the lag in subsidy compensations and the unclear roadmap for the deregulation of diesel, said sources. The delayed compensations have led to huge borrowings and interest burden on oil retailers. PSU oil retailers including IOC currently incur a loss of Rs 10.48 per litre on diesel, Rs 36.20 a litre on kerosene and Rs 542.71 per 14.2-kg LPG cylinder on selling the fuels below cost.
The IOC disinvestment proposal received tepid response during international roadshows across Hong Kong, Singapore, New York, Boston and London last month, with top fund houses showing little interest in the offer.
In a letter dated November 29 addressed to the DoD, the oil ministry wrote that the DoD may carefully consider the lukewarm