ONGC FPO: Is it still on the cards?

The current fiscal 2011-12 has been all about the government making efforts to meet its revenue targets and abstain from overshooting the fiscal deficit limit by a long shot, if not stay within it. For achieving the same, it planned out a very flamboyant disinvestment plan of Rs 40,000 crore. However, this plan went horrendously wrong and with hardly a month left for the Union Budget FY13, it’s highly unlikely that the disinvestment targets can be met. At present the centre has been successful in garnering merely Rs 1,145 crore through this route via the PTC offer.

The much coveted Rs 12,000 crore ONGC FPO sale on which the government had pinned its hopes also saw a very abrupt end when the offer was annulled on the eve of its date of opening. The reasons cited were difference of opinion over the issue price and other capital raising matters.

However, even after ONGC decided against an FPO, there was lot of speculation brewing on the streets that the offer would go through. Finally, the state-run Maharatna put an end to all the speculations by withdrawing its offer documents filed with the SEBI. The company termed the withdrawal as a mere technical procedure, but we believe that the actual reasons were poor market conditions and the lack of FII interest in the offer.   

Though ONGC seems to have withdrawn its FPO documents, on close observation of its shareholding pattern released for the month of December 2011, the company still seems to have an active ‘ONGC FPO escrow account’, where it continues to hold the 5 per cent shares that the Government of India proposed to sell when the DRHP was filled for the FPO. As per practice, the company should have transferred back the shares to the government post withdrawal of the offer.

For the kind information of our readers, an escrow account is an account designed to hold stock that has been put into custody of a third party and must be retained until the occurrence or performance of the particular event that it is created for. In this case, the escrow account was created by the promoter of ONGC (president of India), who intended to transfer shares to those who applied or the FPO.

As mentioned above, with an annulment of the offer, such stock from the escrow account should have been transferred back to the promoter’s (president of India) account. As such a procedure has not been followed a logical thought that comes to mind is that there appear to be prospects of an FPO offer still very much alive.

In out view, with markets recently showing an improving trend, this might as well be a good time for re-launching the offer and further boost investor sentiments. It’s also been noted that the FIIs are flocking back to the Indian equity markets with January’s net investments currently at Rs 4,442 crore. In the wake of an improving market trend and strong FII participation, we believe that the government must look into re-launching the FPO. However, the only downside that might hamper the plans is the rising subsidy bill and the ad-hoc sharing mechanism.