News Detail

• More than a week after Oil and Natural Gas Corp. Ltd (ONGC) sold a 4.91% stake for Rs.12,767 crore, the government’s divestment in the oil and gas explorer has raised fresh questions on bid details and the allocation of shares.On 1 March, ONGC sold 420.4 million shares, or 4.91% stake, to the public for Rs.12,766.75 crore at an average price of Rs.303.67, against a floor price of Rs.290, according to official data.On 5 March, the company announced that another government-owned firm, Life Insurance Corp. of India (LIC), bought as many as 377.1 million shares, or 4.4% stake, in the auction for Rs.11,069.60 crore at an average price of Rs.293.5, taking up the insurer’s total holding in the company to 9.475%.

• A back-of-the-envelope calculation shows the remaining 43.3 million shares were sold at an average price of Rs.392 each, a 35% premium on the minimum price.Company executives, government officials and merchant bankers managing the sale were unable to provide the identity or profile of the bidders who bought the stock at such a hefty premium, raising questions on the nature of the bids and the basis of allotment in India’s second-largest public offering.

• In a public issue, typically the seller, the merchant bankers, the stock exchanges, the company, the depositories and the market regulator possess all details of a stake sale.Two of the six investment bankers said they weren’t sure of the allotment details but it was unlikely that any bidder was allotted a share at a price of Rs.392 a share. They spoke on condition that neither they nor their firms be named.

• A finance ministry official with direct knowledge of the matter, too, ruled out the possibility of allotting a share at Rs.392 in the auction, but said he was not aware of the details.“You can ask ONGC about the details of the bids and the name of the buyers,” said Haleem Khan, divestment secretary in the finance ministry.“We’re not authorized to receive the name of the bidders who have been allotted shares. This data will either be with the seller (government) or the stock exchanges. We’re just given the quantity of shares that have changed hands,” an ONGC official said, requesting anonymity. “So, we don’t know who has bought the remaining shares or at what price.”

• “Even we have tried to reconcile the data over the last few days but haven’t been able to do so since we do not have the exact figures from the stock exchanges,” said N.K. Sinha, company secretary, ONGC.“I’m told our department has only the details of total shares sold, the price and the number of bids,” an official at the divestment department said, declining to be named. “We’re not aware of the name of the buyers. The regulator and the stock exchanges may be aware of it.”

• Despite several attempts, the stock exchanges neither disclosed the identity of the bidders nor any other details of the allotment process of the ONGC stake sale.The ONGC scrip closed at Rs.282.85, up 1.47%, on BSE on Friday; the benchmark Sensex rose 2.09%.LIC held about 3.23% stake at end-December, according to exchange filings, but the 5 March announcement by ONGC said the life insurer held 5.067% stake in the firm before the auction. This had raised allegations of foul play by the government to get LIC to buy an additional 1.84% stake in ONGC in the run-up to the auction to support a high minimum price for the 1 March public issue.

• “LIC has always had around 5% stake in ONGC,” the unnamed ONGC official said. “The 3.23% stake was held directly by it and the rest was held under some of LIC’s unit-linked insurance policies.”This was verified by the annual reports of ONGC for fiscals 2010 and 2011. In the 2011 report, LIC and four of its schemes featured in the list of the top 10 shareholders. LIC had a 3.06% holding and its four schemes’ combined holding was 1.72%. Other LIC schemes hold smaller stakes.

• Following confusion over the reporting format of LIC’s actual shareholding in ONGC, the company will approach the stock exchanges to find out a better manner of reporting on the shareholding pattern.“While giving out the shareholding pattern for the company, we rely on the beneficiary position data given to us by Central Depository Services (India) Ltd on that particular day,” said the ONGC official.“ONGC is reporting its shareholding pattern to the stock exchanges as per the provisions of the listing agreement,” ONGC said in response to an email. “Clarification is being sought from the stock exchanges in view of the declarations made by LIC on 1 December 2010 and 5 March 2012.”

• As a part of its ongoing divestment programme, the government originally intended to sell 427.7 million, or 5% stake, in ONGC, but owing to a poor market response LIC had to come to the rescue.After a 6-hour-long crisis meeting in North Block on the auction day, it was discovered that LIC emerged as virtually the lone institutional bidder, picking up 88% of the shares sold.

• Apart from the price discrepancy and the controversial role of LIC in the divestment process, there are several other questions that are yet to be answered. While all bids were supposed to be updated on the exchanges on a real-time basis, it is not known why the updating process of the exchanges stopped at 3.20pm, 10 minutes before the markets closed.After putting out an unofficial figure of bids worth 292 million shares, the exchanges late on Thursday night said there were total bids worth 420.4 million shares. It is not known how and when exactly the bids for 128.4 million shares materialized.Sebi has launched a probe into the matter.

Source