ONGC shares dipped 1.2% as bids for over 97 lakh shares were received up to 2.30 pm on Thursday. This accounts for about 2 per cent of the total planned sale of 42.77 crore shares. The bidding has picked up a bit after a slow start for the first two hours when bids for only over 35,000 shares were received. The government is offering to sell 5 per cent of its stake (42.77 crore shares) in the state-run oil explorer. The auction for the shares, which takes place today, will help the government raise over Rs 12,000 crore. The sale of ONGC shares is part of the government's divestment programme.
Here are 10 facts on the ONGC auction:
1) As of 2.30 pm, bids were received for 97,03,894 shares. The company's share price dipped 1.2 per cent after gaining 1 per cent in early morning trade. Institutional investors are likely to bid later and try to keep their bidding prices under wraps. In an auction, bidding typically intensifies towards the end of the trading session. A Reuters report said that State Bank of India, the largest public sector bank, could bid in for ONGC shares.
2) This is the biggest equity offering this year. The government's holding will come down to 69.14% from 74.14% currently post the share sale. The auction for 42.77 crore shares will start at 09:15 am and end at 3.30 pm. The floor price has been set at Rs 290 per share. The minimum bid quantity is one share (lot size of one share). Citi, JM, Nomura, DSP ML, Morgan Stanley and HSBC Securities are the investment bankers for the deal.
3) The government is selling part of its stake in ONGC to meet its divestment target of Rs 40,000 crore. The government is widely expected to miss its deficit target of 4.6 per cent of GDP for the current fiscal year ending March, partly due to its inability to meet the budget target for more than Rs 40,000 crore in state-company share sales. So far this fiscal year, the government has only raised about Rs 1,250 crore.
4) The government had earlier planned to sell ONGC shares through a public offering but that plan was scrapped last October after tepid response from investors amid weak equity markets. India's stock market posted its first annual fall in three years in 2011, losing nearly 25 percent. Shares in ONGC fell 20 percent in the same period. But the stock market has rebounded in 2012 and the BSE Sensex has climbed nearly 15 percent, with foreign funds scooping up beaten shares worth more than $7 billion.
5) Retail investors can participate but market participants say they will not be able to compete with big fund houses and institutions. That is because there will be no discounts and reservation for retail investors. Normally, 35 per cent of the shares in a public offer are reserved for small investors. "The only disappointment would be on the retail side because retail investors would not be able to participate... Usually retail investors get a discount but that's not happening," RS Sharma, Former CMD of ONGC told NDTV Profit on Wednesday.
6) So, who will buy: Big foreign funds, including sovereign funds from Abu Dhabi and Kuwait, have assured the government that they will buy the 5% stake, according to reports. Funds from Singapore and London have reportedly also informally underwritten the stake sale. Life Insurance Corporation (LIC) is also expected to bid in today's auction, according to the market buzz.
7) This is the first stake sale being done via auction route. Only last month, the Securities & Exchange Board of India (Sebi) allowed shareholders of the country's top 100 companies by market value to raise funds by auctioning their stakes through stock exchanges. Bankers said while investors would be able to participate in the auction in the same way as in the previously used follow-on share offering, the owner of a company would save significant cost and time in the auctioning process.
8) How does the auction work: Multiple orders from a single buyer shall be permitted. The indicative price & cumulative bid quantity shall be made available on exchanges at regular intervals. Allocation will be intimated to the bidding broker on T+1 basis. Stock exchanges will collect 100% of the order value in cash. No single bidder other than MFs & insurance companies will be given more than 25 per cent shares.
9) Valuation: Rs 290 is a very good price. The stock is valued at Rs 330 on 2013 earnings per share (EPS), which is 9-times FY 13 price earnings, Sanjiv Prasad, Executive Director and Co-Head of Kotak Institutional Equities told NDTV Profit yesterday. The multiples can be re-rated to 10-11- times given the optimistic outlook in the markets, he added.
10) A successful auction in ONGC shares will pave the way for divestment in other public sector companies like heavy engineering goods firm BHEL and steel major SAIL.
(With inputs from Reuters)
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