Ahead of its proposed 5% stake sale in ONGC via the offer for sale (OFS) route, the government may clarify to investors that it won’t reimpose the burden of subsidy-sharing on the state-run explorer. Such clarification, besides assuring potential investors, could fetch the government more revenue from the OFS than the estimated Rs 11,200 crore at the current market prices, an official said.
ONGC OFS is crucial for the government to achieve this fiscal’s ambitious disinvestment target of Rs 80,000 crore. It has so far garnered only Rs 9,220 crore.
In recent roadshows organised by the department of investment and public asset management (DIPAM) in the US, investors flagged the simmering issue of the ONGC stock’s low price-to-earnings (P/E) ratio, low gas prices realised by the firm domestic production and its lack of control over its subsidiaries.
The P/E ratio, an indicator of investors appetite, of ONGC is at a little over 10. Globally, an average P/E ratio of 20-25 earnings is considered attractive.
“The investors are bothered that the company is not getting its full value,” said another official privy to the deliberations with investors.
ONGC’s peers — Petro China has a P/E of 37.2 while for Brazil’s Petrobras its 23.54. It is surprising that even after acquisition of 51% stake in HPCL and sharp increase in crude oil prices (which will generate more revenue for the firm), the company’s stock did not show any upside, the first official said. ONGC’s stock price declined by nearly 9% since January 2018 while the BSE Sensex rose 13% during the period.
On Thursday, the ONGC stock closed at Rs 174.65 on BSE, up 0.49%. Among others, there were also concerns on gas prices.
“The investors were of the opinion that in India, if Petronet LNG is able to sell LNG at $10 mmBtu, ONGC selling at $3 is unfair,” the second official said. ONGC sells domestic gas as per the price fixed by the government which is revised twice a year. At present, while gas produced from difficult fields can be sold at $6.78 mmBtu, rest is sold by the company at $3.06 per mmBtu.
The Centre owns 67.45% in ONGC. ONGC had bought the Centre’s stake in HPCL for `36,915 crore last year, helping to boost the disinvestment receipts.
The previous stake sale in ONGC was in FY12, when the Centre sold a 5% stake to raise `12,750 crore, thanks to a bailout by the Life Insurance Corporation of India. Since then, the Centre’s plan to sell more of its holding in the company floundered as the stock got hammered due to sharing of the government’s fuel subsidy burden.
Sources told FE that the government has dropped a plan to ask ONGC to resume sharing its fuel subsidy burden if the Indian basket of crude breaches $70 a barrel.