According to newspaper reports, the central government is planning to divest 15% of Indian Oil Corporation's (IOC) equity via the book building route. Earlier the government had decided to divest only 10% of equity.
Indian Oil Corporation (IOC) is India's largest company in terms of sales. The company has a refining capacity of 31.4 m tonnes per annum (45% of the domestic refining capacity). The company also operates seven pipelines out of the 10 that India has.
The government, which is planning a joint book building for the domestic and foreign institutional investors as a mode of disinvestment, will see its holding decline to 67% in the oil sector giant.
The government's move to step up the disinvestment target to 15% of the stock of IOC is clearly motivated by its desire to meet the Rs 100 bn target that it set for itself in the budget statement for the current fiscal year. A failure to meet this target will only exacerbate the fiscal imbalance at the centre.
IOC does not stand to gain much from the planned disinvestment. There will be no flow of cash resources into IOC. Instead, a disinvestment in favour of a strategic partner would have brought in fresh resources into the company. In view of the emerging scenario the company would have been better off with a strategic partner as against a lower government holding (still a 67% holding).
The IOC stock has been rated as a 'BUY' by analysts mainly because of its strong marketing infrastructure, large refining capacity and control of major import infrastructure.
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