In a significant development, Indian Oil Corporation Ltd. (IOC) has decided to withdraw its previously proposed rights issue worth 22,000 crore. This decision was announced through a regulatory filing on September 30, 2024, and is attributed to the government's non-participation in the rights issue.
The IOC had initially approved the fund-raising plan on July 7, 2023, subject to statutory approvals. However, the company's plans were altered after the Union Budget 2024 did not allocate the anticipated financial support to Oil Marketing Companies (OMCs). The Ministry of Petroleum & Natural Gas had proposed an allocation of 30,000 crore in capital support for OMCs in the 2024 Budget, but the final Budget made no provision for these funds.
Government's Non-Participation
Given that the government currently holds a 51.5% stake in Indian Oil Corporation, its non-participation in the rights issue prompted the IOC board to reconsider and eventually cancel the proposal. The filing stated, 'In view of the governments non-participation, the board has decided to withdraw the proposed rights issue of shares'.
Impact on Financials and Market
The cancellation of the rights issue comes at a time when OMCs are facing potential fuel price cuts, which could further pressure their financials. According to a report by BoFA Securities, OMCs could experience significant EPS reductions if fuel prices are cut. The sector is also dealing with negative LPG marketing margins and weak Gross Refining Margins (GRMs), which continue to challenge the sector's profitability.
Despite the announcement, shares of Indian Oil Corporation recovered from their early losses and ended 0.2% higher at 180.4 on the NSE. The stock has been relatively flat over the last month but has posted a strong 40% rise so far in 2024, reflecting investor confidence amid volatile market conditions.
Implications for Other OMCs
This development has also shifted the focus onto Bharat Petroleum Corporation Ltd. (BPCL), which recently received approval from its board to raise 18,000 crore via a rights issue. Market watchers are keen to see whether BPCL will follow in IOCs footsteps or proceed with its capital-raising plan.
The decision by Indian Oil Corporation signals a cautious approach to fundraising amidst uncertain market conditions and regulatory shifts, leaving the industry and investors watching closely for the next move by BPCL and other OMCs.
For more detailed insights into the financial performance and market dynamics of Indian Oil Corporation, it is essential to consider the broader context of the energy sector and government policies. The Oil and Natural Gas Corporation and other state-owned entities play crucial roles in this sector.
