Oil India stake sale price to be announced today

The government will offload its 10 per cent equity in Oil India Ltd (OIL) via OFS (offer for sale) route on Friday.  The decision for the same was taken last week by the Empowered Group of Ministers, headed by finance minister P Chidambaram.

Roughly, the public sector firm is likely to raise around Rs 3,000 crore. The government holds 78.43 per cent stake in the company and would come down to 68.43 per cent, after disinvestment.

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OIL issue would help the government inch closer to the Rs 30,000-crore disinvestment target it had set for FY13. The government has so far raised Rs 6,900 crore through disinvestment.

TK Ananth Kumar, director-finance, Oil India told CNBC-TV18 that share price of the issue will be announced later in the day and he cannot comment on whether it will be at a premium or at a discount to the current price.

Below is the edited transcript of his interview to CNBC-TV18

Q: Could you confirm for us what has been agreed with the government in terms of the percentage that will be put up in the Offer For Sale (OFS) and whether Oil India has made any recommendation on the floor price you think should be suggested?

A: Government is selling six crore shares through OFS which is getting launched tomorrow. The pricing will be announced today evening.

Q: Does it look like a price which will be above Rs 500 or will there be a substantial discount to the market price you think?

A: It is difficult for me to make any comments on that. The Empowered Group of Ministers (EGoM) has discussed and they will announce the price today evening after 3.30 PM.

Q: What the subsidy sharing burden would be by the end of this year and also will issues on gas pricing will be resolved soon. On that what would you tell your investors ahead of the issue?

A: The gross realization during the year has been steady at USD 109/bbl and net debt USD 53. As the subsidy burden has been consistent that is USD 56 during the last nine months. We have already got the communication about USD 56 for third quarter also.

So, we expect that with reforms which have been initiated by the government, the subsidy burden and under recoveries both should come down from next year onwards. This year we don't expect significant reduction. However, next year onwards we expect subsidy burden should be reduced.

Q: Any clarity in terms of percentage that upstream companies will share?

A: The percentage in terms of the under recovery during nine months has been about 36.4 per cent. However, more than the percentage it is the formula at USD 56 per barrel which has been introduced last year. It is being continued this year also.

Q: Any clarity that you all have got on the gas price hike issue or whether or not the Rangarajan Committee recommendations will be taken on board? How soon they could be implemented if the cabinet also clears it?

A: We have not heard anything from Ministry of Petroleum officially as yet. However, from informal sources and also through media we understand that favorable recommendations for revision of gas price have gone.

It should be taken up very soon and this will be a good upside for both Oil India and ONGC. We have made a rough estimate that each USD 1 increase at gross level should give us around Rs 360 crore and USD 225 crore as net profit. So, USD 4 if it comes through it should substantially boost our profitability.