>ONGC: 5% ONGC stake sale through auction – Again opened GOI divestment programme

The sale of ONGC shares is part of the Indian government's divestment programme and other state-run companies in which it has to reduce its holding includes NFL, Neyveli Lignite, RCF, STC, Coal India, NMDC because of "minimum public shareholding guidelines".


ONGC is one of the faster growing E&P stocks in Asia with impressive 3-year production CAGRs of 7% in oil and 6% in gas. It is also attractive at PE of 10.8 while Asian Peers are quoting at 17.5 PE. ONGC is quoting at deep discount. In EV/BOE multiple stock is less than half of its global peers .We are positive for the stock.


Company Description
It is one of the largest Asia-based oil and gas exploration and production companies, and produces around 77% of India's total crude oil production (and around 30% of total demand) and around 81% of natural gas production. ONGC is one of the largest publicly traded companies by market capitalization in India and the largest India-based company measured by profits. ONGC was founded on 14 August 1956 by the Indian state, which currently holds a 74.14% equity stake. Post auction GOI holding will come down to 69%. It is involved in exploring for and exploiting hydrocarbons in 26 sedimentary basins of India, and owns and operates over 11,000 kilometres of pipelines in the country. In 2010, it was ranked 18th in the Platts Top 250 Global Energy Company Rankings and 413th in the Fortune Global 500.


During the fiscal year ended March 31, 2011 (fiscal 2011), the Company had a crude oil production of 34.04 million metric tons and natural gas production of 28.02 million metric tons. On April 16, 2011, the Company’s subsidiary ONGC Videsh Limited (OVL), added one asset in its portfolio of exploratory assets by signing agreements with KazMunaiGas (KMG), the national oil company of Kazakhstan for acquisition of 25% participating interest in Satpayev exploration block. Its subsidiaries include ONGC Videsh Limited (OVL), Mangalore Refinery & Petrochemicals Ltd., ONGC Nile Ganga BV (ONGBV), ONGC
Nile Ganga (Cyprus) Ltd., Jarpeno Limited, Imperial Energy Corporation Plc, Imperial Energy Limited and Imperial Energy Kostanai Limited 


Subsidy burden 
ONGC has historically shared ~30% of its overall subsidy burden. The highest share it has ever borne a subsidy share of 34.5%, which caps its domestic prices realization to US$60/bbl. CRISIL Research, India’s largest independent integrated research house, expects an upward pressure on crude oil prices due to the ongoing geo-political tensions in Iran. As a result, average crude oil prices will remain firm in the range of $110-120 per barrel during 2012, higher than the earlier estimates of $100 per barrel, despite a weak global economy.


This will compel the government to hike the retail selling prices of regulated fuels at least by 10-15% in 2012-13 in order to rein in the mounting under-recoveries. This will release some burden from ONGC’s shoulder.


Strong production growth ahead
After virtually stagnating for the last five years, ONGC is expected to increase its overall oil & gas production at a CAGR of 6 -7% over F2012-15e, driven by increased production from its joint venture with Cairn, and fields in western offshore. Having spent US$20bn in domestic E&P capex over F2008-11, ONGC is expected to spend another US$18bn over F2012-14. 


5% ONGC stake sale through auction – Again opened GOI divestment programme
The government will sell 5 percent of its holding, or about 428 million shares, in the offering and the floor price for the issue has been set at 290 rupees a share. Only Institutional 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. Unlike earlier divestments, retail investors will be kept out of this sale. The auction is open only to institutional investors.


The Union Finance Ministry came out with the "minimum public shareholding guidelines" on June 4, 2010, which was later revised in August 9, 2010 that PSUs are expected to maintain minimum public shareholding of 10 per cent within a period of three years. So companies have time till June 3, 2013 to comply with this requirement. SEBI on 4th Jan 2012 allowed government holding more than 90% in PSUs to reduce their shareholding through an auction to institutional players.
RISH TRADER