Oil India to go ahead with initial offering

Oil India (OIL), the country's second largest government-owned exploration and production company, plans to go ahead with its initial share sale to the public despite the stock markets falling more than 29 per cent from its peak in January. However, the issue, earlier scheduled for February, is likely to be delayed by a few months.

Rubbishing speculations that the share sale has been put off indefinitely due to market volatility, OIL Chairman and Managing Director MR Pasrija said, "Our fundamentals are strong.

The demand for petroleum will remain high," adding that the high crude oil prices would mean the bottomline would remain strong. Crude oil prices have hovered around $100 per barrel over the last month.

Pasrija did not give a timeframe for the public offer as the company is awaiting government clearance.

The Bombay Stock Exchange's Oil & Gas Index has dipped 26.73 per cent to 9,730.91 points on Monday compared with 13,280.88 on January 1. The benchmark Sensex has gone down by 24.69 per cent in the same period.

There were speculations that OIL's share sale may be put off "indefinitely" as the government is not keen that the company enter a weak market.

"Moreover, since OIL has not yet met the Clause 49 norms and there is a possibility of early elections, the share sale is not likely to happen any time soon," said a senior government official.

Another senior company official said that no decision on putting off the share sale has been taken. "We will wait and see what our lead managers advise us," the official said.

The company has appointed JM Morgan Stanley, Citigroup and HSBC Securities as the book running lead managers to the issue.

OIL had planned to offer 10 per cent of its shares to the public in February to raise around Rs 2,000 crore.

But this sale didn't happen as the company is yet to meet the Clause 49 norms, which makes it mandatory for a listed company with an executive chairman to have half of its board made up of independent directors.

"We are awaiting clearance of the names for independent directors from the petroleum ministry," Pasrija said. He added that the company still expected a good price from share sale.

Its reserve replacement ratio or the rate at which it adds new discoveries to replenish existing fields is almost 2. Globally, oil majors have a reserve replacement ratio of around 1.

In 2008-09, the company plans to invest over Rs 2,200 crore in exploration and production.

It is targetting to produce 3.50 million tonne of oil from its domestic fields in the current financial year. It produced 3.11 million tonne in 2006-07.

The government also plans to sell 10 per cent of its equity in OIL to Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation to raise another Rs 2,000 crore.