ONGC offer for sale shaves off ₹11,000 cr in market cap

Suresh P. Iyengar | | Updated on: Mar 30, 2022

Issue open for non-retail investors subscribed 3.57 times

The Government’s offer for sale (OFS) of ONGC has shaved off about ₹11,000 crore in market cap, as the Centre set the floor price at a discount at ₹159..

As the share price of ONGCdipped 17 per cent from its 52-week high of ₹195, recorded on March 8, market-cap saw an erosion of ₹25,000 crore. On Wednesday, it shed five per cent to ₹162 even as the overall market mood remained bullish with benchmark Sensex gaining 740 points.

Bright prospects

Moreover, the future prospects of ONGC remain quiet bright with rising oil and gas prices, and consistent dividend paying policy.

The Government on Tuesday announced plans to sell up to 1.5 per cent equity stake in oil and gas giant ONGC through an OFS of equity to raise about ₹3,000 crore by selling 19 crore shares.

To exercise green-shoe option

The OFS, which opened on Wednesday for non-retail bidders, was subscribed 3.57 times with institutional investors putting in bids for ₹4,854 crore. They placed bids for over 30.35 crore shares against 8.49 crore shares reserved for them.

Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey in a tweet said, “The issue was subscribed 3.57 times of the base size. Government has decided to exercise the green-shoe option”.

So far in the current fiscal, the Government has mopped up ₹12,423.67 crore through OFS, employee OFS, strategic disinvestment and buyback, as against the target of ₹ 78,000 crore.

The issue opens for retail investors on Thursday. The Government owns about 60 per cent stake in the company.

Analysts’ opinion

Anil R, Senior Research Analyst, Geojit Financial Services, said it is a normal mechanism for the market to adjust the current stock price in-line with offer price. Unlike OFS, he added, private placements such as qualified institutional placement does not lead to negative effect on prices.

In the medium term, oil prices are likely to stay at elevated levels on account of geopolitical tensions. Further, ONGC will benefit from high domestic gas prices, which are expected to double from the current $2.9 per mmbtu (metric million British thermal unit) starting from April, he said.

Vinit Bolinjkar, Head of Research, Ventura Securities, said the company is getting higher realisation for its oil and gas volumes, which is expected to significantly boost its financial performance in the March and June quarters. There should be at least 20 per cent upside from the current price, he added.

Dr Mayank Joshipura, Associate Dean - Research, NMIMS School of Business Management, said dilution of stake through the OFS and CPSE ETF always leads to fall in price and investors in PSUs have to live with this overhang all the time.

The Government may have chosen the OFS route as it wanted to sell the shares before March-end to reduce its fiscal deficit, especially with the scheduled LIC IPO being delayed due to market turbulence caused by Russia-Ukraine war, he added.

Published on March 30, 2022
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