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ONGC stock to be split to lure retail buyers in FPO

Govt has approved splitting each share of ONGC into two, making it affordable for investors ahead of FPO in which the govt will divest 5% of its holding next year.

, ET Bureau|
Nov 23, 2010, 09.03 AM IST
NEW DELHI: The government has approved splitting each share of Oil & Natural Gas Corp (ONGC) into two, making it attractive and affordable for retail investors ahead of the follow-on public offer (FPO) in which the government will divest 5% of its holding next year, two officials directly involved in the matter said.

“ONGC price is still very high to attract retail investors,” an investment banker said requesting anonymity. Several companies split their shares ahead of a public issue to lure more applications.

ONGC’s share split, which will halve the worth of each share, would require retail investors to part with a smaller amount while applying for its shares, an advisor for the share sale, who did not want to be identified, said.

The company’s stock soared to a 52-week high of Rs 1,472 on September 28 on BSE. On Monday, the scrip rose 2.48% to Rs 1,296.75. After the ONGC board approves the stock split, the state-owned company will make an announcement. A spokesperson for ONGC did not respond to an emailed query.

“Both the disinvestment department and oil ministry have approved the share split,” one official said. Earlier this month, ONGC chairman & managing director RS Sharma said the company had sought the government’s approval for a share split before its proposed FPO.

Speaking at the Economic Editors’ conference on October 27, Mr Sharma had said ONGC would be ready for the FPO by the last quarter of this financial year.

ONGC has already appointed global consultants to certify its oil and gas reserves. The appointment of DeGolyer and MacNaughton (D&M) and Gaffney, Cline and Associates (GCA) as auditors signals the company’s preparedness for the FPO, ONGC officials said.

The company obtains third-party certification of its reserves every five years, but its upcoming FPO encouraged ONGC to advance this exercise by two years, an official said.

Third-party reserve estimation is also a requirement before a public offer of any exploration & production (E&P) company.

Though the government plans to sell its 5% stake through an FPO by March 31, 2011, officials in the ministries of oil and finance fear that overcrowding of the market may push the issue to the first
quarter of next financial year.

ONGC and the oil ministry are following the 2010-11 schedule, though the department of disinvestment will decide about the date of the launch, a senior official in the oil ministry said.

"The ministry of petroleum and natural gas has accorded in-principal approval (to the share sale) and the department of disinvestment has circulated a note for inter-ministerial consultations," he said.

The government wants a big retail participation in the ONGC FPO unlike in some PSU issues where retail participation was low, an official said. Retail investors, however, actively participated in the recent public offerings of Coal India and PowerGrid Corp.

The government wants to raise about Rs 11,000 crore by selling its 5% shares in ONGC through an FPO by March 31. The government holds 74.14% in the company.

The government targets to raise Rs 40,000 crore in the current fiscal year through disinvesting small stakes in state-run companies. It has already mopped up about Rs 25,000 crore through the divestment of Coal India, PowerGrid, Satluj Jal Vidyut Nigam and Engineers India.

Companies slated for disinvestment include Steel Authority of India (SAIL), Indian Oil Corp (IOC), Hindustan Copper, Manganese Ore India, Shipping Corporation of India and ONGC.

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