IOC wants diesel price freed before share sale

State-owned Indian Oil Corp wants diesel prices to be freed from government control before its twin follow-on public offersto raise maximum funds, company Chairman B M Bansal said on Monday.

The government had in June deregulated or freed petrol price from its control and announced an intent to do the same for diesel rates. Nearly three months after the decision, state-run fuel retailers continue to sell diesel at subsidised rates.

"We believe diesel price deregulation will unlock the true value (of IOC). We hope the government will free diesel prices that before the FPO," Bansal told PTI from Mumbai.

IOC and its sister public sector firms Bharat Petroleum and Hindustan Petroleum currently sell diesel at Rs 1.55 a litre loss.

The government plans to divest its 5-10 per cent stake in IOC and Oil and Natural Gas Corp through separate FPOs to fetch about Rs 24,000 crore (Rs 240 billion) this fiscal.

While government intends selling 5 per cent of its holding in ONGC, a 10 per cent divestment is on cards for IOC. Alongside the government stake sale, IOC plans do a public offer of its 10 per cent expanded equity to raise close to Rs 9,000 crore (Rs 90 billion) for part-financing its capital expenditure.

"IOC FPO is likely in January/February," he said. The oil ministry is currently in the process appointing independent directors on IOC and ONGC boards to meet market regulator SEBI's listing requirement.

The two firms don't meet the SEBI norm of having half of their Board strength made up of non-official or independent directors.

Post stake sale, the government's shareholding in ONGC will come down to 69.14 per cent from 74.14 per cent. In IOC, the twin divestment and stake sale would reduce the government holding from 78.92 per cent to 64.57 per cent.

According to the road map being prepared, IOC would be the first to be disinvested. It will first sell 10 per cent, or 24.27 crore equity shares, which at Monday's stock closing price of Rs 441.10 would fetch the company Rs 10,700 crore (Rs 107 billion) to help it part-finance its capital expenditure of Rs 75,000 crore (Rs 750 billion).

This would be followed by sale of 10 per cent government holding, amounting to 19 crore shares, to raise Rs 8,380 crore (Rs 83.8 billion). ONGC divestment will follow this.

The sale of 5 per cent or 10.6 crore equity shares in ONGC, at Monday's closing price of Rs 1,404.20, would fetch the government over Rs 14,880 crore (Rs 148.8 billion). "Our capital requirement is Rs 9,000 to 10,000 crore (Rs 90 to 100 billion)," Bansal said.

The government had in June decontrolled petrol price, which resulted in a Rs 3.50 per litre hike in rates in Delhi.

Also, diesel prices were hiked by Rs 2 per litre, domestic LPG by Rs 35 per cylinder and Rs 3 a litre on kerosene.

Despite the June move, IOC currently loses Rs 1.55 a litre on diesel, Rs 158.06 per litre on LPG and Rs 15.57 a litre on kerosene. Overall, it is estimated to lose Rs 30,023 crore (Rs  300.23 billion) in revenues this fiscal.