ONGC shares dipped 1.9% as a last minute bid by Life Insurance Corporation, the state-owned insurer, helped complete the process. The total planned sale was 42.77 crore shares. LIC is believed to have invested close to Rs 4,000 crore. The auction for the shares 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) At market close, bids were received for 29.22 crore shares, according to ONGC chairman Sudhir Vasudeva. The company's share price dipped 1.8 per cent after gaining 1 per cent in early morning trade. 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. Sources told NDTV Profit that LIC has helped the government complete the entire auction process.
2) This is the biggest equity offering this year. The government could hope to get Rs 12,400 crore if the issue is priced at Rs 295 per share. The auction for 42.77 crore shares started at 09:15 am and ended at 3.30 pm. The floor price was set at Rs 290 per share. The minimum bid quantity was 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 sold a 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) There was no scope for retail investors to participate. That is because there was 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) Big foreign funds, including sovereign funds from Abu Dhabi and Kuwait, had assured the government that they would buy the 5% stake, according to reports. Funds from Singapore and London reportedly also informally underwrote the stake sale. Life Insurance Corporation (LIC) was 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 was a very good price. The stock was 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. However, the market has not accepted this argument.
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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