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Indian Oil Corporation’s (IOC) offer for sale (OFS) managed to scrape through on Monday with help from domestic institutional investors amid a bloodbath in the broader market. Foreign institutions largely stayed away.
The issue was oversubscribed 1.18 times on the NSE, with the retail quota remaining undersubscribed. According to data on the NSE website at 3.30 pm, the retail category was subscribed 0.18 times, while the general category, comprising domestic and overseas institutional investors, was subscribed 1.43 times. “We are happy with the response to the Indian Oil OFS, despite adverse market conditions,” said Disinvestment Secretary Aradhana Johri.
Sources said LIC bought almost 75 per cent of the shares on offer worth around Rs 7,000 crore.
When contacted an LIC official, on condition of anonymity, said they purchased a “substantial portion”.
“LIC is a long-term investor and we looked at the offer quality and subscribed for it. A call was made to us since as there was a crisis-like situation with the markets. We have not set aside any funds for disinvestment. We take a call based on the merit of every offer,” the official said.
LIC is known to be a contrarian player in the market — it is big buyer whenever the market falls sharply, while books profit whenever the market see an uptick. Market players said if not for IOC share sale, LIC would have provided buying support to the market and help mitigate part of the fall.
Asked if the government instructed LIC to buy shares late in the trading day to pick up the slack, Johri said: “During stake sales, calls are made to all big investors by us and the merchant bankers. It is always the case in OFS that the last one hour sees a high volume in trading.”
Sources said state-owned banks, including State Bank of India (SBI), also submitted bids in the share sale. “It is a good stock and it could deliver good returns. Where will you get IOC at these prices? It has no subsidy problem,” Arundhati Bhattacharya, chairman, SBI said.
The government on Saturday had announced a floor price of Rs 387 per share for the OFS, a two per cent discount to Friday’s closing price. However, the 4.1 per cent fall in the stock price in the secondary market on Monday wiped out the discount. At Monday’s closing price of Rs 376.2, the OFS floor price was about 2.9 per cent higher for investors in the general category.
For retail investors, the effective discount was reduced to 2.3 per cent. About 48.5 million shares, or 20 per cent of the shares on offer, were reserved for retail investors, who were offered an additional five per cent discount.
“My sense is that it was the domestic institutions who predominantly bought the shares,” said a merchant banker, on condition of anonymity. “Retail investors had to deal with margin calls, making it difficult for most to take any fresh positions.”
Disinvestment Secretary Johri said the OFS had got a strong response despite adverse market conditions. “There was a strong sell sentiment, which is why the retail investors stayed away.”
The government will raise Rs 9,379 crore from the disinvestment. Following the OFS, the government’s stake in IOC will stand at 68.92 per cent.
The IOC share sale was the biggest since the Coal India OFS worth about Rs 22,000 crore in January this year. The merchant bankers that handled the share sale were Citi, Deutsche Equities, Nomura, JM Financial and Kotak Securities.
This is the fourth disinvestment in a public sector company this financial year. With the IOC OFS, the total sell-off proceeds raised so far in FY16 is Rs 12,800 crore, against a target of Rs 41,000 crore for disinvestment in profit-making public sector undertakings. Earlier this financial year, the government had raised Rs 1,610 crore from disinvestment in Rural Electrification Corporation, Rs 1,600 crore from Power Finance Corporation and Rs 145 crore from Dredging Corporation of India.
The government also plans to raise Rs 28,500 crore from disinvestment in loss-making firms. It has already secured the Cabinet approval for stake sales worth Rs 50,000 crore in 20 companies, though these stakes might not be sold this year.
The government is in the process of selecting merchant bankers for disinvestment in many companies such as MMTC, NMDC, Container Corporation of India, Oil India, National Aluminium Company, Bharat Electronics, India Tourism, Hindustan Copper and NTPC. It might also sell an additional 10 per cent stake in Coal India.
On Tuesday, IOC had announced a net profit of Rs 6,436 crore for the quarter ended June this year, compared with Rs 2,523 crore during the corresponding period last year. IOC is India’s biggest oil refining and marketing company, with 54.2 million tonnes (mt) of refining capacity, about a fourth of the country’s overall refining capacity of 215.1 mt. Besides, it owns and operates 24,405 fuel pumps, a little less than half of India’s 53,419 filling stations.
