The Indian Oil office in New Delhi. The nation’s biggest refiner may sell its new shares starting April 1 as rising crude oil prices, which have advanced 22 per cent in the last six months, erode earnings. Image Credit: Bloomberg

New Delhi: India will delay a sale of shares in Indian Oil Corp (IOC), the nation's biggest offering, to the year starting April 1 as rising crude oil prices erode earnings, a person with direct knowledge of the matter said.

MMTC Ltd, Power Finance Corp and Rashtriya Ispat Nigam Ltd will also sell shares next financial year, the person said, asking not to be identified before a final decision is taken. Offerings in Oil & Natural Gas Corp (ONGC) and Steel Authority of India will be completed as scheduled by March, the person said.

The ONGC and Steel Authority share sales will help Prime Minister Manmohan Singh's government raise its targeted Rs400 billion (Dh32.29 billion) from asset sales in the year ending March, Disinvestment Secretary Sumit Bose said yesterday. Crude oil's 22 per cent advance in the past six months has eroded earnings for Indian Oil, the nation's biggest refiner, which sells fuels below cost to help curb inflation.

Taming inflation

"With oil continuing to rise, controlling inflation becomes difficult," said D.K. Aggarwal, who manages about $100 million as chairman of SMC Wealth Management Services Ltd. in New Delhi.

"That means the Indian Oil share sale will keep getting delayed."

Indian Oil hasn't heard from the government on the timing of the share sale, Chairman B.M. Bansal said by telephone yesterday.

Bansal said in October the company and the government would sell a 20 per cent stake, valued at about Rs170 billion, based on the current share price.

Indian Oil gained 0.2 per cent to Rs349.50 in Mumbai trading, valuing the company at about $19 billion. The stock advanced 12 per cent last year compared with a 17 per cent increase in the benchmark Sensitive Index.

Oil reached $91.55 a barrel on January 3, the highest in more than two years. Crude prices will average $86.54 a barrel in New York in 2011, according to the mean estimate of 34 analysts in a Bloomberg survey.

Oil for February delivery fell as much as 1.22 cents to $88.16 a barrel in electronic trading on the New York Mercantile Exchange. It was at $88.22 at 10:59am London time.

Indian Oil may be forced to buy crude at higher prices from the spot market after the country's central bank last month scrapped a payment mechanism using dollars and euros to settle transactions with Iran, India's second-biggest supplier.

Iran will sell oil to Indian Oil on credit this month as officials discuss ways to resolve the payment gridlock, two people with direct knowledge of the matter said yesterday.

Original plan

Indian Oil planned to sell shares by the fourth week of January, Chairman Bansal said on November 19. The government will sell a 10 per cent stake and the refiner an additional 10 per cent to raise money for projects and cut debt, he said October 6.

Indian Oil hired Citigroup Inc, ICICI Securities Ltd, Merrill Lynch, Morgan Stanley, SBI Capital Markets and UBS AG to manage the share sale, four people with knowledge of the matter said in November.