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Govt mulling $2 billion share sale of ONGC, IOC & OIL to meet divestment target

The Ministry of Finance is planning a mix of share sales and buybacks by state oil companies to raise the money 

Govt mulling $2 billion share sale of ONGC, IOC & OIL to meet divestment target
Govt mulling $2 billion share sale of ONGC, IOC & OIL to meet divestment target

New Delhi: To meet the divestment target it has set for itself, the government is mulling sale of shares worth $2 billion in three state-owned oil companies — Oil and Natural Gas Corp (ONGC), Indian Oil Corp (IOC) and Oil India Ltd (OIL). This would be on top of the proceeds earned by the government from Rs 10,000-crore share buyback by these companies.

The government is considering the sale of about 5 percent equity stake in ONGC, 3 percent in Indian Oil and 10 percent in Oil India, sources said, cautioning that the quantum could vary by the time the government launches offers for sale.

The government has, so far, met about a fourth of its total target of Rs 80,000 crores. According to people familiar with the matter, the Ministry of Finance is planning a mix of share sales and buybacks by state oil companies to raise a cumulative total of $2 billion. The government is considering the sale of about 5 percent equity stake in ONGC, 3 percent in Indian Oil and 10 percent in Oil India, sources said, cautioning that the quantum could vary by the time the government launches offers for sale.

The timing of the sale is yet to be finalised but it could take place in a month or so. Both will depend on investor sentiment and details of the buyback plans, sources said. A 5 percent stake in ONGC was worth about Rs 10,000 crore at the end of trade on Thursday with the stock falling 1.6 percent to Rs 158.45, while a 3 percent stake in IOC was worth Rs 4,200 crore with the stock up 0.7 percent at Rs 146.35. A 10 percent stake in Oil India was worth Rs 2,300 crore — the stock was up 0.25 percent at Rs 203.50. That would mean, at current market rates, a planned share sale could fetch about Rs 16,500 crore ($2.3 billion). The government is likely to offload these shares at a 5 percent discount to market rates, sources said.

Earlier this month, the government sold a 3% stake in Coal India via the offer for sale (OFS) or auction route. If the share sale goes forward at the levels mentioned above, the government’s stakes would fall to 62.48% in ONGC, 53.75% in IOC and 56.13% in Oil India. Sources said that the companies were although resisting buybacks earlier and had warned the government of a dividend cut this year if they were forced to repurchase shares, they have now come around. Sources said that they will now have to match at least the last financial year’s payout.

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