Indian government raises $585 million from Oil India sale

The offer for sale was about 2.6 times covered and the lowest clearing price equalled a 3.7% discount to the previous day’s close.
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Oil India accounts for about 10% of domestic crude output
<div style="text-align: left;"> Oil India accounts for about 10% of domestic crude output </div>

The Indian government was able to pocket at least Rs31.26 billion ($585 million) from its sale of a 10% stake in Oil India on Friday, bringing it one step closer to its target of raising $5.6 billion from asset sales in the current fiscal year.

According to data published on the websites of the Bombay and National stock exchanges, investors subscribed to about 154.14 billion shares in the oil and gas producer, which left the deal close to 2.6 times covered. The weighted average price of the bids received (also referred to as the indicative price) was Rs517.99 per share, which was a slight premium to the floor price of Rs510.

The lowest price that got allocated was Rs520, which translated into a discount of 3.7% versus Thursday’s closing price of Rs540 on the National Stock Exchange. However, the share price fell 3.3% to Rs522 on Friday while the deal was open for subscriptions.

The shares were sold through an offer for sale, which is an auction-like process where investors put in bids for how many shares they want to buy and at what price. In this particular case the shares were sold at multiple clearing prices, which meant that investors each paid the price they bid and bids at the highest price were allocated in full before moving on to lower bids.

There was little information about who bought the shares, but sources estimated that the demand was split fairly evenly between foreign and domestic investors, perhaps with a slight overweight towards foreign institutions. This is good news as it shows that the appetite for Indian stocks among international investors remains well supported following a series of government reforms to improve the Indian economy and address the budget and current account deficits.

The level of demand overall should also be a welcome sign for the government, which is looking to step up the pace of its divestments in state-owned companies.

With no asset sales at all in the first seven months of the fiscal year that ends in March 2013, and the combined divestment proceeds amounting to just $1.8 billion after the Oil India sale (from three separate sell-downs), it has been looking like the government may fail to reach its divestment target of Rs300 billion ($5.6 billion).

However, it now seems determined to make up as much as possible of the potential shortfall during the next two months.

The government was already expected to sell a 9.5% stake in power producer NTPC this month and on Friday last week a finance ministry official told reporters in New Delhi that the government is also planning to sell part of its stakes in National Aluminium Co, Steel Authority of India, Rashtriya Chemicals & Fertilizer and Metals and Mining Trading Corp before the end of March.

That should reduce the potential shortfall compared to the initial target to no more than 10% to 20%, one investor estimated.

NTPC is expected to raise between $2.3 billion and $2.5 billion from an OFS similar to that of Oil India and bankers have said the deal may launch as soon as this week.

Last week’s sale in Oil India comprised 60.113 billion shares and reduced the government’s stake to 68.4%. The company accounts for about 10% of India’s domestic crude output and about 5% to 6% of its natural gas production.

The offer for sale was arranged by Citi, HSBC and Kotak Mahindra.

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