ONGC Auction Marked by Question against the Disinvestment Strategy as Last Minute Bid by LIC and SBI Saves the Day for the Government!
Indian Holocaust My Father`s Life and Time - Eight HUNDRED TEN
Indian Holocaust My Father`s Life and Time - Eight HUNDRED TEN
- Economic Times - 6 hours agoIt also took a decision to allow PSU firms to bid in the government divestmentprogramme to bridge the ballooning fiscal deficit gap. India's largest public ...After ONGC, it maybe Oil India: Govt official Moneycontrol.com
- Indian Express - 1 hour agoA list of eight PSUs including Coal India, NMDC, SAIL, NTPC, ONGC and OIL has... "They are likely to be asked to partake in the disinvestment programme.Govt approves buyback of PSU shares to expedite disinvestment Times of IndiaGovt allows PSUs to buyback shares IBNLive.comPSU shares gain in weak market as govt approves buyback Business Standard
- Gulf Times - 20 hours agoIndia's stalled divestment programme also calls for reduced holdings in other state-run firms such as Bharat Heavy Electricals and Steel Authority of India.Govt says ONGC auction a success Times of IndiaOutcome uncertain in India ONGC $2.5 bln share sale Reuters IndiaOutcome uncertain for ONGC share sale Business Standard
- NDTV - 8 hours agoCash rich public sector companies like Coal India (cash of Rs 45862 crore, ... Buybacks, cross-holdings are a way to increase divestment proceeds.
- Times of India - 18 hours agoNEW DELHI: The government is set to provide a major thrust to disinvestment in the coming months to bolster its financial position and generate resources to ...
- Moneycontrol.com - 8 hours agoThe Department of Disinvestment had proposed part sale of government stake to ...is detrimental for cash rich companies like Coal India , ONGC and NTPC as ...
- Reuters India - 6 hours ago... and officials at the Department of Disinvestment were not available. ... ICICI Bank shed 2.5 percent and bigger rival State Bank of India dropped 1.3 ...
- Hindustan Times - 8 hours ago... the Comptroller and Auditor General of India has said in a report. ... but also should considerdisinvestment in loss making units " the report said.
- Business Standard - 4 days ago... the policy of using 25% of the disinvestment proceeds for reviving sick PSUs and... up for stake sale include Hindustan Copper, SAIL, BHEL and Oil India.Govt may use 25% disinvestment money on sick PSUs Expressindia.com
- Business Standard - 23 hours agoProceeds from disinvestment were not up to expectations. ... Disinvestmentfetched the government Rs 1100 crore from Power Finance Corporation, ...Budget 2012: UPA's moment of catharsis? Zee News
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ONGC Auction Marked by Question against the Disinvestment Strategy as Last Minute Bid by LIC and SBI Saves the Day for the Government! India's $2.5 billion auction of government shares in Oil and Natural Gas Corp ended in chaos, with TV channels saying it had generated bids for just two-thirds of the shares on offer, but both of the country's main stock exchanges saying they were still counting orders.
News channel reports said that the offer for sale received bids for 29.22 crore shares worth about Rs 8,500 crore against the offer of 42.77 crore shares that should have fetched over Rs 12,000 crore for the Government.
However, some sources maintain that the issue was fully subscribed.After some hiccups and a late intervention, the sale of government's 5% stake in ONGC through an auction finally managed to sail through with an estimated proceeds of about Rs 12,000 crore to partly meet the disinvestment target of current fiscal.
While government sources claimed that certain "last minute" orders had led to the issue being fully subscribed, data available on the Web sites of both the BSE and the NSE showed only a tepid response to the issue.
After some hiccups and a late government intervention, the sale of government's 5 per cent stake in ONGC through an auction finally managed to sail through with an estimated proceeds of about Rs 12,000 crore to partly meet the disinvestment target of current fiscal.
Hectic parleys were held for more than four hours after the end of the auction process at 1530 hours and a final tally of the bids remained elusive for that time. Late in the night, top finance ministry officials confirmed that the share sale has been a success and the government has raised the desired proceeds from the auction.
After putting the final bid tally after the end of the auction at about 22.9 crore shares, as against total offer size of 42.77 crore shares, the stock exchanges also later said that the issue has got fully subscribed in the auction, where the floor price was fixed at Rs 290 a piece.
Speaking to reporters, Additional Secretary in Department of Disinvestment Siddharth Pradhan said that the issue has got fully subscribed and the market regulator Sebi has been asked to look into thetechnical glitches due to which some bids could not get registered. Till about 9 pm the stock exchange data continued to show that the issue had failed to receive the desired bids.
As reports earlier in the day were not encouraging with bids worth only about Rs 8,500 crore, the government appears to have nudged the public sector giants, including LIC, to pitch in with their bids and help the issue sail through.
Pradhan said that the bids should have come in for shares worth about Rs 11,800-11,900 crore and the final proceeds could go even beyond Rs 12,000 crore after all the tabulation. The glitches took place because of many bids coming in at the last moment and the system could not cope up, he added.
When asked whether the government has asked the public sector institutions to bail out the issue, Pradhan said: "We have not asked any one (to bail out)... ONGC shares are undervalued as compared to the peer group." Sources said that various rounds of meetings took place amongst the government officials, stock exchange executives and Sebi personnel after the closure of auction.
A poor show by ONGC share sale, through a one-day auction, as was evident from the earlier exchange data, could have also reflected badly on the government's overall disinvestment programme. The government had targetted to raise Rs 40,000 crore through disinvestment in the current fiscal, had been able to raise just over Rs 1,100 crore prior to the ONGC issue.
Business Line Hindu reports:
The BSE and NSE Web sites showed that bids were received only for 1.43 crore shares, or just over three per cent of the issue size, as of 3-20 p.m., ten minutes before the sale closed.
'GOES TO PUBLIC EXCHEQUER'The Petroleum Minister, Mr S. Jaipal Reddy, when asked about the reversal in trend of the sale, which had a brisk opening, said that his Ministry has no comment to make on the issue as it was handled by the Department of Disinvestment.
"The money that accrues from the sale gets accredited to the public exchequer," he said indicating that benefits would not come to the Petroleum Ministry, even if it was oversubscribed.
Asked if the reason for this performance of ONGC could be the subsidy issue, Mr Reddy said the matter was between the Ministries of Finance and Petroleum and that the investors in ONGC "are mature enough to understand the problem."
According to sources in the Capital, ONGC's top management was virtually kept out of the loop on the decision to offload the stake, with neither the ONGC Chairman nor the Company Secretary reportedly present at the meeting that fixed the floor price.
MONEY TRANSFERAccording to sources, whose information was not officially confirmed, state-owned financial institutions led by LIC threw a lifeline to the issue at the last minute, which led to the exchanges not being able to release the final bid quantum.
"What happened between 3-20 p.m. and 3-30 p.m. that the exchanges are not able to give subscription figures even after two hours?" asked Mr Arun Kejriwal, Founder, KRIS Research. Stock market sources said that domestic institutions, LIC and State Bank of India subscribed heavily to the issue in the last 10 minutes while FIIs kept away from this offer for sale.
Marketmen said this was a clear case of a failure on the part of the government, as asking domestic institutions to subscribe to the issue amounted to transferring its money from one pocket to another.
"FIIs were not comfortable with the floor price and they could wait until the domestic institutions sell the shares at a price cheaper than the floor price of Rs 290 a share," said the Managing Director of a research firm. Interestingly, the ONGC scrip closed at Rs 287.85 to a share, below the floor price of Rs 290, on the BSE, shedding 1.87 per cent over its previous close of Rs 293.35.
Reasons for the ONGC fiasco
The single biggest reason for this is that it was priced too high. To start with, it was unusual for the government to set a floor price of Rs. 290, at a time when the ONGC stock was trading at Rs. 283
Mark to Market | Mobis PhiliposeThe government's attempt to boldly restart its disinvestment programme to take advantage of the liquidity in the market has come a cropper. But for a ludicrous last-minute scramble by government-controlled financial institutions, the government may have had few offers for its stake sale in Oil and Natural Gas Corp. Ltd (ONGC). Some news reports suggest that most of the last-minute bids were put in by theLife Insurance Corporation of India. The fiasco about announcing the final subscription amount, too, was in the finest tradition of bureaucratic bungling.
In short, the issue was a flop. The single biggest reason for this is that it was priced too high. To start with, it was unusual for the government to set a floor price of Rs. 290, at a time when the ONGC stock was trading at Rs. 283. As pointed out in this column on Thursday, typically a seller of a large block of shares is willing to settle for a discount to prevailing market prices.
When ONGC's shares jumped to Rs. 293 apiece a day before the auction, it seemed there may be sufficient demand for the issue, aided by the surge in liquidity in the markets and the improvement in sentiment in the primary market. After all, Multi Commodity Exchange of India Ltd's (MCX) initial public offering was subscribed 54 times. But the experience with ONGC shows that the markets are being selective, and valuations still matter.
There's another possibility: demand from non-government investors may have been weak even at slightly lower prices. This is because of the utter lack of clarity about the share ONGC will have to bear in the subsidies granted by the government in oil products. Of course, there will always be takers for the stock at some price, but the government has, in typical fashion, worked against its own interests by being non-transparent about its subsidy-sharing arrangements.
The company's share price should now drop to reflect the tepid demand in the primary market offering. For the broader market, the signal the ONGC share-sale flop sends out is that the recent liquidity-driven rally cannot be taken for granted. While foreign inflows are still strong, stock valuations and clarity in earnings are also important. Until recently, investors were willing to ignore bad news such as the poor results of Tata Steel Ltd and Bharat Heavy Electricals Ltd. Those days may well be over.
The ONGC issue also sends a warning to investment bankers involved in capital-raising that pricing needs to be set at reasonable levels. While the MCX issue was successful, the company had played safe by setting a wide price band, with the floor price being about 20% lower than the price it finally issued its shares at. For the government, the lesson is a simple one—you cannot take investors for granted.
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Auction price low due to subsidy sharing woes: RS SharmaPublished on Mon, Feb 27, 2012 at 16:00 | Source : CNBC-TV18
Updated at Mon, Feb 27, 2012 at 18:53
The government is planning to auction 5% stake in state-run oil explorer ONGC , which would fetch Rs 12,000 crore for the exchequer. The EGoM, headed by Finance Minister Pranab Mukherjee, is expected to decide on the timeline and the base or reserve price for the auction of Government stake in ONGC.
Talking on the development, RS Sharma, ex-chairman, ONGC said that the prevailing price is depressed because of the uncertainty on subsidy sharing formulation. According to him, if the government could come up with a mechanism, the ONGC stock would have been trading at least 15-20% higher.
Below is an unedited trasncript of his interview. Also watch the accompanying video.
Q: Do you think it will be easily sold. There will be enough appetite for ONGC?
A: Yes, one of the activities I am doing is talking to the large funds and institutional investors and I feel that the sentiment is quite good for ONGC despite the prevailing uncertainty about the subsidy sharing.
Q: Investors have been saying they will buy ONGC but they are not insensitive to the price at which it is offered and they would like to see a reserve price of somewhere in the vicinity of Rs 270 - do you think that is likely?
A: This is for the policy makers. Today, the EGoM may take a view and put the timeline and then ask the merchant bankers to work out a price in a day or so. They will give the expectations and the base price, reserve price may be decided but surely it should be lower than the current prevailing price. But the ONGC stock continues to do well despite prevailing uncertainties on what the retention price for crude oil for the company would be in times to come.
Q: That is a sore point for a large number of investors; in the current risk on environment they might buy ONGC but they still have their apprehensions about the frequent flip-flops on the subsidiary sharing percentage - do you expect the government to indicate anything concrete before the sale or do you think it is confident that it will go through?
A: You are absolutely right. As of now, I personally feel the price which is currently prevailing is depressed because of the uncertainty on subsidy sharing formulation. Had some mechanism been there, the ONGC stock should have been at least higher 15-20% but since that is not there, the current price itself is depressed. I don't anticipate considering the complexities that we know for the government to come out with a statement on this mechanism before this FPO process goes through.
Q: Is it likely; are you hearing anything of that sort?
A: No. My apprehension is it may not come because I know the complexities and the way the discussions are taking place. There are multiple factors to be taken care of. There are a large number of stakeholders, the government itself is the largest stakeholder in terms of the balance under-recoveries to be absorbed - how much the price increase is to be passed to the consumers. These are all end determinant factors and with so many end determinant factors, I find that the government, despite its best intention, is not able to come out with a mechanism.
Q: We get this feedback from a lot of global investors that people who want to buy upstream in India would rather prefer buying into Cairn rather than an ONGC - do you hear such refrain from your talk with investors to?
A: My take is that both are equally attractive stocks. While they have been very bullish on Cairn, I can tell you the same is the sentiment for ONGC, the mere fact because of the fundamental values of the company, the stock are quite high. The large number of acreage that ONCG holds, the large number of discoveries we had, the potential to increase the production through more and more drilling, put in new marginal fields into production, I feel the potential to ramp up the production is high, and as it is in the 12th Plan, the production targets are higher than the actual what has been achieved in 11th Plan. Personally, I feel there is no reason why that increase shouldn't be achieved especially when the crude prices are already peaking and I wouldn't say peaking. My take is that they may be going to levels which may be difficult even to put in a number.
Q: We were just talking to the BPCL chairman earlier and he was saying that he was very distressed at the price of crude and his inability to pass down prices - on petrol, which is supposed to be regulated, will put pressure on the subsidy sharing for ONGC as well?
A: There is apprehension in the mind of all the investors but still they have to take a call on investing. The only thing is that the price itself is depressed - it was known what the
the retention price for ONGC will be and the price for the subsidy sharing mechanism would have been much higher. So the current market price takes into the reckoning the current uncertainties which is currently prevailing.
If the government fixes the reserve price slightly lower than this, I know there is huge appetite with the institutional investors given the overall strength of ONGC, considering that it has got its own oil field services in-house, the overseas operations, MRPL expanding capacity, the other value added products, JV is coming on stream. In times to come, we see that ONGC is bound to grow.
Q: The current price is Rs 285, the reserve price is somewhere in the vicinity of Rs 272-Rs 275 - do you think investors will buy all the way upto Rs 300 or just short of that?
A: If the reserve price is at Rs 270, I don't think that will be kept so low but at the current price, there is a huge appetite. So any price fixation lower than this is fine and this is an auction route. The first time ONGC was diluted from 100% government entity, the first tranche 2% divestment was done through the auction route. The kind of prices that we have received especially from overseas funds, perhaps we got offers as much as or higher than Rs 2,000 per share.
Thereafter, ONGC had done bonus issues and the shares split. Despite all the adversity, ONGC continues to do well. The production levels are sustained and even the current gas price that ONGC gets everybody wants to buy that ONGC at that price and all other alternate benchmarks are much higher. So this means it is a potential for ONGC bottom-line in future to go up, higher price realization for gas and the production increase is coming up so the future looks quite promising.