The OIL board, at its meeting yesterday, approved the proposal to buy IOC shares in an off-market trade, sources privy to the development said.
The board of Oil and Natural Gas Corp (ONGC), which is to buy an equal number of shares in IOC, is yet to meet on the issue.
The government had offered a 10 per cent shareholding in IOC to ONGC and OIL at a discount of about 10 per cent to the current trading price.
IOC shares closed at Rs 247.45 on the BSE, up Rs 3.45 from yesterday, valuing the company at Rs 60,079 crore.
At a 10 per cent discount to the current price, the government's sale of 24.27 crore shares (or a 10 per cent stake) in IOC would fetch about Rs 5,400 crore.
Sources said the final price would be decided by the Empowered Group of Ministers headed by Finance Minister P Chidambaram.
IOC shares have gained about Rs 36 apiece since January 16, when the EGoM on disinvestment cleared the stake sale in the nation's largest oil firm through a block deal.
The EGoM had then cleared the stake sale at the current market price, plus/minus 1 per cent.
ONGC and OIL, however, wrote to the Petroleum Ministry saying they would each buy a 5 per cent stake in IOC from the government at the six-month average traded price and not at the current rate.
A trade with a minimum 5 lakh shares or a minimum value of Rs 5 crore executed through a single transaction on a separate window of a stock exchange constitutes a block deal.
A block deal order for a scrip should be within a range of 1 per cent from the ruling market price (last traded price).
ONGC currently holds an 8.77 per cent stake in IOC.
Although the Cabinet had originally cleared the 10 per cent stake sale in IOC through an offer for sale, the Finance Ministry had to go in for the block deal route on account of stiff opposition from the Petroleum Ministry.
The oil ministry had argued that IOC shares should not be sold at the current price as it did not reflect the right valuation of the company.