Indian Oil Corporation has scaled down the size of its proposed global depository receipts issue to $150-200 million against the planned sum of $350 million.
The lower target factored in the erosion of the rupee's value against the dollar and the company's lower share price on domestic bourses over the year, IOC sources said.
Apart from that with the falling prices of crude the margins of oil companies all over the world have fallen. Due to this oil companies are out of favour with international investors, resulting in a reduced appetite of the IOC paper.
The issue comprises a public offering of 19.5 million shares, representing a divestment of five percent by the government's holding, bringing down its stake to 86 percent from the current 91 percent level.
The oil major's maiden GDR issue, which was dogged by uncertainty for a year-and-half, has been scheduled for the last quarter of 1998.
The issue was planned in early 1997 and was estimated to mop up $350 million based on then prevailing market conditions.
But deteriorating financial market conditions, political uncertainity, and changes in the policy environment for the oil sector caused several delays during which market conditions changed substantially.
The IOC scrip's price dropped steadily over the last year as stock markets remained dull. In recent times, it was hit by strong selling by foreign funds. It ended Wednesday at Rs 477. A year ago it traded in the Rs 800 to Rs 900 range. IOC estimates the GDR to mop up at least $150 million at the present value of the rupee assuming a share price of Rs 470 to Rs 500 and taking into account a discount over the ruling market price.
The rupee depreciated to 42.95-43.05 compared to 35.7 a year ago, considerably bringing down the expected inflows the government could expect through the issue. The rupee depreciation also affects the total dollar mop up. For instance if IOC sold its share when the rupee was strong it would have got more dollars.
The corporation is in the process of having its financial statements appraised and realigned with the Generally Accepted Accounting Principles (GAAP) format favoured in the United States by international accountants, officials said.
But despite the fall in the share price, IOC showed encouraging results for the first quarter ended June 30 with net profit at Rs 590 crore, a rise of 105 per cent over the previous year. For the financial year ended March 31, 1998, it reported a 21 percent jump in net profits to Rs 1,706 crore.
