ONGC May Help Fill Government Coffers

With fiscal 2011-12 nearing its final stages, it’s but natural that the government may fail to meet its flamboyant disinvestment target of Rs 40,000 crore. Having mopped up only Rs 1,100 crore via the Power Finance Company FPO, the government in recent times has stepped up its efforts to try ending the year on a fairly respectable note.

At such an hour, market regulator SEBI threw a lifeline to the government on February 1, 2012 by approving the process for offer of sale of shares by promoters on the exchanges through the auction mechanism.

Consequently, an empowered group of ministers (EGoM) cleared the decision on February 15, 2012 to auction 5 per cent stake in ONGC on the exchanges, which could fetch the government around Rs 12,000 crore. Here, we would like to take credit as we had predicted in an earlier article (ONGC FPO: Is It Still On The Cards? dated January 20, 2012) the possibility of re-introducing the ONFC offer sale in line with the improving market conditions.

However, we would like to bring to the notice of our readers that the current offer for sale in ONGC is not on similar lines to the conventional FPO. Rather, the government has adopted a more streamlined, economical and swift approach to achieve the sale of shares.

SEBI has introduced the process to facilitate promoters to dilute their stake in a more transparent manner with wider participation. Such a facility has not only been extended to the government-owned PSUs but to all those companies who rank among the top 100 on NSE and BSE based on average market capitalisation of their last completed quarter. However, SEBI has strictly maintained that promoters or promoter groups won’t be allowed to participate in the offer.

Elaborating further on the guidelines formulated by SEBI, it has been noted that the minimum size of the offer shall be 1 per cent of the paid up capital or minimum of Rs 25 crore. While making announcement of the auction offer, the seller must choose either BSE or NSE as a designated stock exchange through whom the auction trades would be conducted. Also, the company would have to mention the allocation methodology, which would be made either on proportionate or price priority basis.

The offering company may also keep a floor price, below which no orders from bidders would be accepted. However, it is not mandatory for the seller to declare the floor price during the announcement of the offer.

Readers must note that the duration of the offer for sale will last for a single day and would be carried out in a separate auction window coinciding with the normal trading hours. No price band shall be fixed for the auction offer and multiple orders from a single buyer would be accepted. All transactions would be carried out on an immediate cash basis.

A minimum of 25 per cent of the offer size has been reserved for mutual funds and insurance companies in order to facilitate larger institutional participation. It has also been decided that no single bidder other than MFs or insurance companies would be allowed more than 25 per cent of the offer size.

What one can observe from the above mentioned guidelines is that the chief reason for allowing the auction route for offer of sale of shares was to streamline the entire process of follow-on offers and reduce the extensive paper work. Investors must note that there is no restriction on retail participation and most of the above mentioned guidelines are pretty much in line with the normal trading patterns observed on any other normal day.