ONGC 5% Stake Disinvestment ~ Government’s ‘On The Road’ Campaign with LIC the Sole Listener !

ONGC 5% Stake Disinvestment ~ Government’s ‘On The Road’ Campaign with LIC the Sole Listener !

The Congress led UPA Government had announced a Disinvestment target of Rs 40000 crs in the FY 12 Union Budget…..It simply was a Non Starter

Now with the Union Budget Address scheduled for March 16,2012,the government hurriedly ordered a 5% Equity Stake Disinvestment in ONGC

On Offer were 427.7 Million Shares of ONGC.The Floor Price was kept at Rs 290 ~ Premium to the Traded Price….The Disinvestment was through an Auction Process with Competitive Realtime Online Bidding on the BSE and NSE

The Poor Response from Investors was clearly a rejection to Subscribe to the ONGC Issue and there was danger of the Auction  being declared a Fiasco and the Disinvestment in ONGC being cancelled….This would have been a slap in the face of an already pressurised government which is tackling a huge current and fiscal deficit that has led to high levels of Government Borrowing to fund these

So what does the Government predictably do !?….It turns to LIC and SBI and is strongly perceived to have ordered them to not only bid heavily but also above Rs 300 !…Tch! Tch!

The Issue sails through with LIC and SBI bidding…the weighted average price is Rs 303.67 thanks to the PSU saviours

For the record,Technical Glitches on the Exchanges are given as reason for undersubscription and lower bids received…SEBI is asked to investigate the cause for this

LIC’s tagline in TV ads is ‘Why go anywhere else !”….Our Government simply and literally agreed !

The Moot Question is not whether ONGC is worth Investing in or not !….but Fingers are being pointed at the Government for shamelessly just playing musical chairs with PSU Funds…from one to another !…the Government needs to be reminded that PSU Funds are those of the PSU Corporate and have to be applied for efficient returns…just because it holds majority shareholding it cannot throw caution to the winds and use PSU Funds,especially those of LIC,as it’s own to do as it pleases

ONGC needs a change in Professional Management to run more efficiently…just a change in shareholding by government chipping away periodically some % of it’s holdings will not do…How does it benefit ONGC !…government yet holds @ 70%  in it…so next time it needs some more monies when budget deficits refuse to be tamed,watch out ONGC,some more of your shares will be up for sale by the Government !

So what will happen to the Share Price of ONGC on the Bourses ?….normally it should have fallen to levels of Rs 250 post such a disinvestment exercise…however,as the sale has taken place at a weighted average bidded Rs 303.67,any downward pressure will be capped for the time being…unless Global Oil Price shoots yet higher on account of  Fears of  Iran Tension escalating into an all out war in the Middle East…it already is US $ 123 a barrel….Indians are unlikely to take kindly to any further Petroleum Products hikes….in which case ONGC’s share of Oil Susbidy will balloon quite dramatically…in which case the Share Price of ONGC will too retrace sharply

Poor LIC and SBI !…maybe someone ought to file a PIL against the government for perceively causing an immediate deliberate Loss of over Rs 1000 crs to these PSUs by ordering them to subscribe for ONGC Shares on offer at even above Floor Price of Rs 290,which itself was at a premium to the current trading price of Rs 280…The Government got Rs 12767 crs in this disinvestment exercise for a traded value of shares worth just above Rs 11500 crs

Corporate Governance,Accountability,Responsibility,Transperancy ~ all on pause or simply frozen in time while Government goes ahead to deplete LIC coffers into it’s own by selling it ONGC Shares at a premium !

Reminds me that several years ago,when Mr Dave was the UTI Chairman , UTI,along with,you guessed it,LIC, subscribed  over Rs 900 crs to Reliance Industries shares at a Premium and that too with a lock in !

Update on March 7,2012

Check out this Business Standard Headline of March 6,2012

LIC Stocked Up on ONGC before govt stake auction 

GOVERNMENT DIRECTED  ? INCREASE IN LIC HOLDING IN ONGC IN 2012

 

December 31,2011

February 8,2012

Pre ONGC Auction Process

March 2,2012

Post ONGC Auction Bidding

No Of Shares in Million

276.39

433.5

811

% Stake

3.23

5.06

9.47

ONGC Share Price in Rs

257

283

282

 

Clearly LIC has picked up 157 Million Shares between January 1,2012 and February 8,2012 and this took ONGC Price up 10% to Rs 283 levels to clearly facilitate the ONGC Disinvestment…Then kast week LIC picked up another 377 Million Shares in the Bidding Process which gave a weighted average price of  Rs 303.67 ….This would compute to an astounding Rs 15000 crs + invested by LIC in the first two months of 2012 alone in 534.21 Million Shares of ONGC

This to my mind is clearly one form of Insider Trading….now don’t go arguing with me on this…unless ofcourse your view is that these Rules do not apply to the Government !

Contrarion ,Growth or Value Investment Approach or simply Directed Investing by LIC for Investment in ONGC ? Your Guess would be right !   

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