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Speaking to CNBC-TV18, RS Sharma, former chairman of ONGC says that the auction route is a disappointment for retail investors. However, the government will get money in faster through auction than FPO or other modes, he says.
After crying wolf too many times, ONGC and the government have finally announced that disinvestment in the oil PSU will be done through an auction on March 1, 2012 . Speaking to CNBC-TV18, RS Sharma, former chairman of ONGC says that the auction route is a disappointment for retail investors. However, the government will get money in faster through auction than FPO or other modes, he says.
Sharma feels that the reserve price must be lower than the current market price (CMP) and is confident that no bidder will bid higher than the CMP.
Despite uncertainties on account of subsidy, ONGC has been performing well, he says. According to him, the need of the hour now is better prices for APMC gas.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Finally we are going to see that disinvestment in ONGC. Earlier it was going to be the FPO route, now it is going to be 5% disinvestment by the auction route. What do you make of it?
Sharma: I can say that for a larger population, it is disappointment that they wont be able to participate. Usually, whenever this FPO process would have gone through, there would have been some discount for retail investors, that is not there now, but from the sellers perspective, this is the quickest way of going through the divestment. The sentiments among FIIs, other institutional and the domestic institutional investors are very strongly positive. I see no reason that there could be any kind of anxiety for the process to be completed in time.
Q: As a former Chairman of ONGC are you happy that the government is going with this auction route? You said that you would have liked it if retail investors had also got a share of that pie, but how do you feel about the fact that this is perhaps just a last ditch attempt by the government to try and shore up its divestment proceeds?
Sharma: Let me tell you the sellers perspective that is the government, they get the money very quickly that is assured. From the companies perspective, the company is not required to do the detail process of issuing RHP document and inviting retail investor, there is a huge paper work involved when retail investors are there. So, this is a very quick and very convenient method of divestment.
As far as the process is concerned, from a sellers and company managements perspective, they will be happy that the entire process will be over in a days time. Disappointment is only from the perspective of retail investors. Let me go a step beyond because the whole disinvestment policy of the government was meant for common man.
The large number of individuals, if they are able to hold stocks of these Navrtana, Maharatna companies and they get it at a discounted price that is not happening. So, that is a disappointment. Even todays strike call, one of the agenda is against divestment of profit making PSUs. Had retail investors and common man also got an opportunity to participate, perhaps the resentment would not have been as strong as it would be now against the auction process.
Q: After that EGoM meet the petroleum Minister Jaipal Reddy did not disclose what the floor price is going to be. He said it will be sent in a notice to the stock exchange. SP Tulsian believes that the floor price will be at a discount of the closing price today of Rs 283 a share. He also believes that most of the bids will come in at a discount. But Prithvi Haldea believes that there is a very strong appetite and he is expecting bids in the range of Rs 320-340 a share. What is the sense that you are getting?
Sharma: I can tell you outright, no bidder is going to give a bid higher than current prevailing market price. The reserve price has to be lower than the price day before the auction is going through. That is the normal process. I see no reason for the reserve price to be set higher. If they do that, it may be a set back for the auction process.
ONGC stock price
On April 17, 2014, Oil and Natural Gas Corporation closed at Rs 318.00, up Rs 1.10, or 0.35 percent. The 52-week high of the share was Rs 353.00 and the 52-week low was Rs 234.40.
The company's trailing 12-month (TTM) EPS was at Rs 24.07 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 13.21. The latest book value of the company is Rs 145.47 per share. At current value, the price-to-book value of the company is 2.19.
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