Govt flags off IOC, ONGC public issues
New Delhi   02-Dec-2010

The government has given the green signal to the blue chip oil companies, ONGC and IndianOil (IOC), to go ahead with follow-on public offers (FPOs).

Together, the two companies will offer shares worth Rs 33,500 crore through a combination of bonus, stock split and FPOs.

The cabinet committee on economic affairs on Wednesday gave the green signal for splitting each ONGC share into two ahead of the FPO, transport and highways minister Kamal Nath told reporters.

In addition, a bonus issue of 1:1 has also been approved. Through the FPO, the government proposes to offload 5 per cent equity in March. At the current market price of the ONGC share, the disinvestment will fetch the government over Rs 13,000 crore.

IOC will hit the Street with its FPO in January. The price band has been fixed at Rs 440 to Rs 450 per share. The government hopes to garner close to Rs 20,000 crore by selling 10 per cent.

The ONGC scrip on the Bombay Stock Exchange surged 3.23 per cent to close at Rs 1,288.50. As on Wednesday, ONGC had a free-float market capitalisation of Rs 55,118 crore.

"This (the decision of share-split and bonus issue) will increase investor confidence in public sector companies. ONGC is a big wealth creator not only for the government but also for all categories of investors like high net-worth individuals, institutions and retail customers," said Anil Chopra, chief executive officer and director of Bajaj Capital.

"Earlier, investors were not very keen to invest in public sector companies. But the ONGC issue will attract more investors. This will help other public offers such as that from IOC," added Chopra.

RS Sharma, ONGC chairman and managing director, didn't comment immediately. Earlier in the day, he had told reporters in an industry conference: "Wait for some time, you will get to hear something."

The government will sell 5 per cent stake in the maharatna company. It has 74.14 per cent in ONGC.

It will sell 106 million equity shares through the FPO. After the FPO, the government's holding will come down to 69.15 per cent.

Sharma had earlier in the day said he expected the government to clarify the subsidy mechanism before the FPO. Asked if the lack of clarity on subsidy sharing would hurt ONGC's issue, Chopra of Bajaj Capital said, "It will not affect ONGC much. It's more of a concern for oil marketing companies such as IOC."

ONGC paid Rs 3,019 crore as subsidy in the second quarter of the current financial year. Its net profit was up 5.87 per cent at Rs 5,389 crore from Rs 5,090 crore in the same period last year. In the first quarter this year, ONGC had paid Rs 5,515 crore as subsidy to oil marketing companies.

ONGC is spending Rs 26,000 crore on drilling in small fields and on increasing output by 12 per cent by 2013. Its production has been stagnant for three years at around 25 million tonnes a year. The company has appointed the consultancy Gaffney, Cline & Associates to prepare the second phase of re-development of its largest oil field in Bombay High. The project is slated for completion by 2012.

Bloomberg News reported that oil production at Bombay High may increase by as much as 10 per cent after ONGC completes the $3.3 billion project. The annual output from the offshore field discovered in the 1970s peaked at 20 million tonnes two decades ago and is now 11 million tonnes.