Indian Oil Says Scrapping of Fuel Subsidies Helps to Consider Share Sale
India’s decision to free gasoline and diesel prices from state control will help in selling shares of Indian Oil Corp., the nation’s second-biggest refiner, Chairman B.M. Bansal said.
A share sale in the refiner, 79 percent owned by the government, will depend on market conditions and a time frame hasn’t been set, Bansal said by telephone today.
Indian Oil surged to a record yesterday after the government deregulated gasoline prices last week and said diesel rates would eventually be freed. Finance Minister Pranab Mukherjee aims to raise 400 billion rupees ($8.6 billion) in the year ending March 31 by selling stakes in state-run companies including Coal India Ltd. and Steel Authority of India Ltd. to help pay for the biggest budget deficit reduction in 19 years.
“The government will raise a bounty and it helps meet much of its money-raising plans,” said Rohit Ahuja, a Mumbai-based analyst for Centrum Broking Ltd. “This is the best opportunity for the government to sell shares, with prices being driven up this way.”
Indian Oil shares fell 1.1 percent to 393.35 rupees in Mumbai trading compared with a 1.4 percent decline in the benchmark Sensitive Index. The stock has gained 15 percent since June 24, the day before the government announcement on fuel prices.
Cash, Debt
Indian Oil and state-run rivals Bharat Petroleum Corp. and Hindustan Petroleum Corp. sell fuels at government-set prices to help curb inflation in India, where consumer prices are rising at the fastest pace among G20 nations. The refiners will not have any loss on gasoline sales after the June 25 decision, according to Oil Secretary S. Sundareshan.
The freeing of gasoline prices and an increase in cooking gas and kerosene rates will help boost Indian Oil’s cash flows and reduce debt, Bansal said. The New Delhi-based refiner’s daily revenue loss from selling fuels below cost will fall to 850 million rupees from 1.2 billion rupees, Bansal said in an interview with Bloomberg UTV yesterday.
Fitch Ratings revised its outlook on Indian Oil and Hindustan Petroleum to stable from negative and affirmed their ratings. The government’s move toward market prices will also improve liquidity and reduce the interest costs of state refiners, Abhinav Goel of Fitch said in a statement today.
The Bombay Stock Exchange’s Sensitive Index has declined 1.1 percent since Sundareshan announced the fuel price changes, while the BSE Oil & Gas Index has increased 3.8 percent in the period.
Improved Valuations
State-run Oil & Natural Gas Corp., the biggest energy explorer that bears part of the fuel subsidy, has gained 9.8 percent since June 24. ONGC sells crude at a discount while the government gives bonds or cash as compensation to state refiners.
“The decision reduces a lot of uncertainty of profitability,” R.S. Sharma, chairman of ONGC, said by telephone today. “That helps increase valuations and we have seen that in the past two days.”
Indian Oil is among 3,000 listed companies that need to sell shares after a new government rule raised the minimum public holding level to 25 percent.
The government may sell a stake in Indian Oil by March 31, Sidhartha Pradhan, joint secretary in the department of disinvestment, said April 27. India plans to sell shares in one state-run company almost every month.
The planned initial public offering by Coal India, the world’s largest producer of the fuel, may take place in September when markets improve, Coal Minister Sriprakash Jaiswal said June 2. State-owned Coal India planned to raise as much as 130 billion rupees in a share sale in July, two government officials said in April.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net.
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