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Indian Oil Corporation (IOC) has turned down a proposal to buy back shares as part of government's 10% disinvestment plan saying that the company already has a huge debt, and no money to spare.
The Department of Disinvestment (DoD) will now float a Cabinet note next month in which it will propose 10% government stake sale in the oil company through the offer for sale (OFS) route, officials said.
"DoD had written to IOC for a buy back. IOC replied saying it already has a huge borrowing and cannot buy back shares as it would require it to do further borrowing," a top official told PTI.
The government plans to sell 10% stake or over 19.16 crore shares in the the nation's largest oil firm to rake in between Rs 6,000-7,000 crore to the exchequer.
At the end of April-December 2012, IOC had a cash balance of Rs 938 crore and Free reserves of over Rs 49,000 crore. However, its borrowings stood at over Rs 94,000 crore.
In the full 2011-12 fiscal, IOC's cash and free reserves stood at Rs 307 crore and over 53,000 crore respectively, while its borrowings were over Rs 75,000 crore.
"So far the total 10% stake would be up for sale. If it has to come in tranches, for that the EGoM on disinvestment would take a final call after taking into consideration the market timing," the official added.
The DoD would by next month float the tender for appointing merchant bankers and legal advisors for managing stake sale of IOC.
The proceeds from IOC disinvestment is likely to be the second largest after Coal India in the current fiscal.
The government aims to raise Rs 40,000 crore through PSU stake sale in 2013-14 and expects to mobilise around Rs 17,000 crore from Coal India disinvestment.
Meanwhile, the Finance Ministry has asked all cash rich PSUs like Coal India, ONGC and Oil India to consider buying government equity in other state-run firms if they do not have sufficient capex plans.
India's 17 major public sector entities including CIL, ONGC, NMDC and OIL had over Rs 1.62 lakh crore in cash reserves during 2012-13.
