While pushing back the disinvestment process of Indian Oil Corp by more than month,petroleum minister M Veerappa Moily has set subsidy payment and finalisation of product pricing guideline as key pre-conditions for starting the stake sale roadshows.
Since IOC share is presently undervalued due to prevailing uncertain economic environment,disinvestment at this stage in the absence of desirable policy decisions would result in lower realisation of value while at the same time lowering IOCs capacity to raise further debt and diminish its image, Moily wrote to finance minister P Chidambaram on Tuesday.
It may be desirable to take a few policy decisions that would enhance the share price of IOC. These may include clarity about pricing methodology and the release of government subsidy,among others, he wrote,emphasising that government policy on pricing of controlled products diesel,LPG and kerosene; subsidy sharing; and the timing of subsidy payout were the main issues impacting IOCs revenue and share price.
Moilys fear is that IOC,which posted a loss of Rs 3,093 crore in the first quarter,was likely to suffer further loss unless the entire under-recovery is reimbursed by the government before declaration of the second quarter result likely in the first week of November.
I accordingly recommend that the roadshows planned for October be deferred to mid-November and some of the critical issues impacting IOC valuation be resolved during this period, Moily concluded,asserting that these decisions would raise IOCs share price and the proceeds to the government. The department of disinvestment held back overseas roadshows,scheduled from October 3,following stiff opposition from the petroleum ministry saying the countrys crown jewels could not be sold at low prices. Chidambaram held a meeting the next day to convince the petroleum ministry to continue with the process.
The Indian Express first reported on October 1 that roadshows would be deferred as IOC chairman had argued that a share sale under present conditions would fetch a low price and would further dent his companys efforts to raise loans for crude oil imports.
Based on market feedback from merchant bankers and research analysts during IOCs recent loan raising drive, chairman RS Butola wrote on September 28 that the disinvestment timing was not in the interest of all stakeholders as the undervalued share would not fetch fair value in the prevailing uncertain environment.
Butola said investors were concerned about uncertainties such as lack of a transparent subsidy-sharing mechanism,price fixation mechanism currently being finalised by the Kirit Parikh committee and the fluctuation in profitability.