LIC stocked up on ONGC before govt stake auction

Lapped up 157 mn shares worth Rs 4,000 crore between Jan 1 and Feb 8

State-controlled Life Insurance Corporation (LIC) of India pumped in at least Rs 4,037 crore to buy 157 million shares in state-owned explorer Oil and Natural Gas Corp (ONGC) in the run-up to the government stake auction last week, according to a filing by ONGC to the stock exchanges on Monday.

According to the company’s shareholding pattern filed with the exchanges, LIC held 276.39 million shares or 3.23 per cent stake in ONGC as on December 31, 2011. This holding increased to 433.5 million shares or 5.06 per cent by February 8, according to Monday’s filing.

This means the additional 157 million shares or 1.83 per cent were bought by the insurer between January 1 and February 8.

LIC’s stake increase coincided with a significant run-up in the ONGC stock, which gained over 10 per cent during this period. ONGC had ended the year 2011 at Rs 257. But, by February 8, it was trading around the Rs 283 mark. An email sent to an LIC spokesperson seeking details of the market operation remained unanswered.

LOADING THE SHOPPING CART BEFORE MEGA SALE

* 276.39 mn LIC shareholding in ONGC as on Dec 31, 2011

* 433.50 mn Holding on Feb 8, 2012

* 157.11 mn Purchases between Jan 1 and Feb 8

* 10% Stock gain between Jan 1 and Feb 8

* 377.10 mn Purchases between Feb 8 and Mar 1

* 810.61 mn Latest holding 

In last week’s auction, the insurer picked up another 377 million shares, taking the total stake, 811 million shares, to 9.47 per cent, according to the company filing.

As of today, the insurer has bought a whopping 534.21 million ONGC shares in 2012, spending over Rs 15,000 crore in the process.

Of this, Rs 11,451 crore was spent in last week’s auction, which happened at an average price of Rs 303.67 a share. The insurer has pumped in at least another Rs 4,037 crore, assuming the preceding open market purchase was done at the lower end of the price range Rs 257-283 that prevailed during the purchase. At the higher end of this range, the insurer would have spent Rs 4,446 crore. Thus, ONGC is the single largest stock pick for the insurer in 2012, accounting for 60 per cent of its estimated Rs 25,000 crore investment in equities this year. None of the other large companies have reported any significant stake increase by the institution in the past two months.

According to takeover rules, substantial acquisitions in a company will have to be reported to the stock exchanges. Arun Kejriwal, director, Kejriwal Research and Investment Services, said, “The government had been postponing the stake sale citing unfavourable market conditions. The open market purchase by LIC seems to have made the conditions favourable for the transaction.”

The government, which sold five per cent of its stake in the explorer last week, had been postponing the sale for over a year.

The sale, originally planned as a follow-on public offering (FPO) was planned in the 2010-11 financial year, but the launch was later deferred to April 5, as the company did not have the adequate number of independent directors on its board to meet Sebi’s listing norms. It was then rescheduled for July 5, but was again deferred due to adverse market conditions. The third deferral happened in September 2011, with unfavourable market conditions cited again. The stock price was hovering around the Rs 260 mark during that period. In January, Sebi introduced the new offer-for-sale provision used to offload the shares last week.