Indian Oil Corp. Ltd (IOCL), a public sector oil marketing company (OMC), has recently announced plans to raise ₹22,000 crore through a rights issue. The capital-raising initiative, approved by the company’s board, aligns with IOCL’s efforts to diversify operations and drive its energy transition initiatives.
IOCL’s Capital-Raising Plans:
- Approval by the Board: The board of IOCL has given the green light for the capital-raising initiative, which involves issuing equity shares on a rights basis. The company aims to raise up to ₹22,000 crore, subject to necessary statutory approvals.
- Driving Energy Transition: IOCL’s capital-raising plans are in line with its commitment to diversify operations and pursue energy transition initiatives. The company has set ambitious targets, including reaching net-zero emissions by 2046. It has ventured into sustainable aviation fuel and green hydrogen production and aims to significantly expand its renewable energy portfolio, in addition to installing 10,000 electric vehicle charging stations over the next three years.
Positive Implications for IOCL:
- Strengthening Capex and Emission Reduction Plan: According to a Fitch Ratings report, the equity capital raised by state-run OMCs, including IOCL, is expected to bolster their capital expenditure (capex) spending and enhance the credibility of their emission-reduction plans. The increased capex on energy transition and emissions reduction will have a notable impact on the OMCs’ standalone credit profiles.
- Shifting Focus to Green Capex: As IOCL increases its investments in green initiatives, including renewable energy and emission-reduction projects, it is expected to reduce its focus on refining capex in the medium-to-long term. This shift will align with the company’s broader energy transition goals and contribute to a greener and more sustainable future.
Benefits of the Rights Issue:
- Strengthening Balance Sheets: The equity issuance through the rights issue will bolster the balance sheets of OMCs, including IOCL. This strengthened financial position will enhance their capacity to undertake significant capex in the energy transition and emission-reduction domains.
- Discounted Opportunity for Shareholders: The rights issue allows existing shareholders to purchase additional new shares at a discounted price. This provides an opportunity for shareholders to increase their exposure to IOCL’s stock while compensating for the dilution of their existing shares’ value.
- Trading of Rights: Shareholders can trade the rights received through the rights issue on the market until the date specified for the purchase of new shares. This flexibility enables shareholders to potentially realize additional value from their rights.
