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India to sell 10% oil stake to cut deficit

Jan 30 2013 15:41 AFP

File, AP)

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New Delhi - India said on Wednesday it planned to sell a 10% stake in state-run refinery Oil India this week for at least $465m as part of plans to reduce its budget deficit.

The Congress-led government of Prime Minister Manmohan Singh urgently needs to raise capital from privatisation with the deficit threatening to exceed a targeted 5.3% of gross domestic product.

The government hopes to raise 25bn rupees to 30bn rupees ($465m-$561m) with its offer of 60 million shares from the Oil India sale set for Friday, said Oil Secretary G.C. Chaturvedi.

"The proposal has been cleared," the oil secretary told reporters.

The government was forced to jettison a few earlier sell-offs due to sluggish market conditions in a sharply slowing economy.

But it has re-energised its privatisation drive with India's market now trading at two-year highs on investor optimism about an economic upturn.

The government was expected to sell the shares of Oil India at a discount to the prevailing share price. The shares closed down 2.3% at 527.15 rupees on Wednesday.

The government holds a 78.43% stake in the company that would fall to 68.43% after the sale.

New Delhi has collected only 69bn rupees in its privatisation drive, raising fears it will be unable to attain its 300bn rupees goal for the current financial year to March 2013 and meet its deficit reduction target.

Cutting the deficit has become even more vital since global ratings agencies Standard & Poor's and Fitch reduced India's sovereign ratings outlook to "negative", jeopardising the country's investment-grade status.

The government has a string of sell-offs planned for the last two months of the fiscal year, including disposal of an 11% stake in iron and steel production giant Steel Authority of India.

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