The Union government will raise at least Rs 12,400 crore (Rs 124 billion) through the sale of five per cent stake in Oil and Natural Gas Corporation (ONGC), giving it a much-needed cushion in the run-up to the Budget.
The government would sell 427.77 million shares at a floor price of Rs 290 through the recently introduced auction mechanism, the company said in a notice to the stock exchanges. The auction will be held during trading hours on March 1.
Unlike earlier divestments, retail investors will be kept out of this sale. The auction is open only to institutional investors.
Earlier today, a Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee cleared the sale through auction and fixed the floor price. Belying expectations of a discount, the floor price has been fixed at a premium of around two per cent to today's close.
ONGC shares gained one per cent to close at Rs 283.55. According to Ajay Parmar of Emkay Global, the auction is expected to see good demand.
"The company is the top exploration player. Rising crude prices and subsidies may not be a big factor as the new formula has shifted the balance towards marketing companies. Also, since ONGC itself is an explorer, it will benefit from higher crude prices." "There
will be high demand as the market price for the share will drift further upwards in the coming days," said Ajay Pandey, head of institutional sales at Intime Spectrum Securities.
The government's stake will come down to 69.14 per cent after the divestment. The ONGC stake sale through auction, along with preferential allotments of PSU shares to financial institutions such as Life Insurance Corporation, is aimed at reaching as close as possible to the Rs 40,000-crore (Rs 400 billion) disinvestment target for 2011-12.
The government has garnered only Rs 1,144.55 crore (Rs 11.44 billion) through the Power Finance Corporation stake sale in the current financial year. The disinvestment kitty would gain respectability towards the fag end of the financial year, with the ONGC stake sale.
The government has also garnered an additional Rs 7,500 crore (Rs 75 billion) this year on account of dividends from PSUs.
Disinvestment in Bharat Heavy Electricals Limited (BHEL), which has also been cleared by the Cabinet, is unlikely to happen in the current financial year.
In the case of BHEL, the proposal is to offload 10 per cent government stake with a view to mopping up around Rs 2,500 crore (Rs 25 billion). The government had got Rs 22,144 crore (Rs 221.44 billion) from disinvestment proceeds in 2010-11, against a target of Rs 40,000 crore (Rs 400 billion).
The government would sell 427.77 million shares at a floor price of Rs 290 through the recently introduced auction mechanism, the company said in a notice to the stock exchanges. The auction will be held during trading hours on March 1.