ONGC, Oil India to buy 10% stake in Indian Oil Corp

State-owned ONGC and Oil India Ltd (OIL) are likely to buy a 10 per cent stake in Indian Oil Corp (IOC) from the government at Rs 220 per share, aggregating about Rs 5,300 crore (Rs 53 billion).

An Empowered Group of Ministers (EGoM) headed by Finance Minister P Chidambaram had on February 28 decided to sell the stake in IOC, the nation's largest oil firm, at a discount of 10 per cent through an off-market deal.

Sources said the IOC scrip traded at about Rs 245 on that day and a 10 per cent discount to that price was calculated to arrive at a selling price of Rs 220 a share. Also, Rs 220 is the three-month average trading price of IOC shares.

The sale of the 10 per cent stake, or 24.27 crore shares, will be through an off-market transaction, with Oil and Natural Gas Corp (ONGC) and OIL each buying 5 per cent. The transaction may take place on March 14 or 15, they said.

Oil Minister M Veerappa Moily had on February 28 confirmed the sale would will happen at 10 per cent discount.

"The two companies (ONGC and OIL) will now work out the deal and the stake sale will happen very shortly. It should be happening in next few days...It will be an off-market deal," then Oil Secretary Vivek Rae stated after the EGoM meeting.

IOC shares fell 0.41 per cent to Rs 254.10 on the BSE in afternoon trade today. They have gained more than Rs 42 since January 16, when the EGoM on disinvestment cleared the stake sale at the current market price, plus/minus 1 per cent.

ONGC and OIL, however, wrote to the Petroleum Ministry saying they would each buy a 5 per cent stake in IOC at the six-month average traded price and not at the current rate.

The government then decided to offer the IOC shares to the companies at a 10 per cent discount to the current market price through an off-market deal.

ONGC currently holds an 8.77 per cent stake in IOC. Although the Cabinet had originally cleared the stake sale in IOC through an offer for sale, the Finance Ministry had to go in for the block deal route after opposition from the Petroleum Ministry.

The Oil Ministry had argued that IOC shares should not be sold through an offer for sale as the current price did not reflect the right valuation of the company.