ONGC to file prospectus for FPO by next month

State-owned Oil and Natural Gas Corp (ONGC) may file papers for a Rs 12,000 crore share sale by early next month, a senior company official said today.

"We have been asked (by the government) to be prepared for the follow-on public offer (FPO). The company board is meeting on August 29 to approve the consolidated accounts. Thereafter the red herring prospectus (RHP) will be filed with (market regulator) Sebi," he said.

The RHP for the FPO may be filed by early next month, he added.

The board on August 29 will approve the RHP which will incorporate financial results for the April-June quarter.

The government plans to sell 5% of 427.77 million shares through the FPO which at today's trading price of Rs 280 a piece will fetch over Rs 11,977 crore.

"We are prepared for the FPO and we are awaiting signal from the Department of Disinvestment as this is government's share sale," the official said.

The FPO was originally planned for 2010-11 fiscal but was deferred to April 5 as the company did not have adequate number of independent directors on its board to meet the SEBI's listing norm.

It was then scheduled for July 5 but was again deferred because of market conditions.

The government had in January appointed Citigroup, Nomura Holdings, Bank of America Corp, HSBC Holdings, JM Financial Services and Morgan Stanley to manage ONGC share sale.

Post-FPO, the government's stake in ONGC would come down to 69.14% from the current 74.14%.

The government's ad-hoc subsidy sharing mechanism has cast a shadow on ONGC's share sale during recent months.

Oil and gas producers like ONGC have to make good a part of the revenues that fuel retailers lose on selling diesel, domestic LPG and kerosene at government-controlled rates. The discount that ONGC gives to IOC, BPCL and HPCL on crude oil it sells to them, is decided on a quarter-to-quarter basis.

"The entire system is ad-hoc and lacks transparency. For investors, this is a matter of concern. And without clarity on subsidy sharing mechanism, it would have been futile to go to market," the official said.

During April-June quarter, upstream firms paid one-third of the over Rs 43,000 crore revenue loss on fuel sales.

ONGC has opposed the ad-hoc fuel subsidy sharing mechanism.

"The upstream companies' share of under-recoveries (revenue loss) has been increased from one-third (33.33%) to 38.75% for the year 2010-11 and 46.89% for Q4 of FY-11," ONGC Chairman and Managing Director A K Hazarika recently said in his letter to Oil Secretary G C Chaturvedi.

As a result, ONGC's net realisation on crude oil sales translated into just $38.75 per barrel, the lowest in the last eight quarters, Hazarika wrote.

"It has not only adversely affected our profits and cash flows, but also investor sentiment and reflected in fall in market capitalisation from Rs 265,520 crore to Rs 228,860 crore, i.E. By 14%".

Hazarika stated that ONGC should get a net crude price of $58-60 per barrel to meet its planned capital investments of Rs 30,000 crore.

He said upstream firms ONGC, Oil India and GAIL India should be asked to bear one-third of under-recoveries only if crude oil stays under $70 per barrel.

But if it touches $75 a barrel, their share should come down to 30%. This share should progressively fall to 25% if crude touches $100, he added.

"If the formula of one-third under-recovery being passed on to upstream companies during the year 2011-12 when the crude prices are likely to remain over $100 per barrel is continued, this would have serious impact on the profitability and cash flows of upstream companies," Hazarika had said.

Upstream firms contributed Rs 30,297 crore out of the total revenue loss of Rs 78,189 crore in the 2010-11 fiscal. Of this, ONGC's share was Rs 24,892 crore.