EGoM approved the Auction Route for selling 5 per cent Stake in State-run Oil Major ONGC

The Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee on 15 February 2012 approved the auction route for selling 5 per cent stake in state-run oil major ONGC before the end of the current fiscal 2011-12. Government holds a 74.14% stake in ONGC and a 67.72% stake in Bhel. A 5% stake auction in Bhel could fetch Rs 5,000 crore.

The proposed disinvestment of government stake in BHEL was however postponed to the fiscal 2012-13.

Only the ONGC follow-on issue is expected to garner additional revenues of around Rs 12,000 crore for the fiscal year 2011-12 as BHEL now out of the divestment agenda for the current fiscal.

The EgoM had met to decide on stake sale in the two major PSUs- ONGC  BHEL with a view to mopping up about Rs 14500 crore in 2-11-12 up from the Rs 1145 crore raised from selling stakes in Power Finance Corporation.

Market regulator, SEBI had announced in January 2012 an auction route to expedite stake sale by promoters by opening a separate window in stock exchanges in which all categories of investors — retail, HNIs, institutional investors and employees could participate. Market regulator SEBI allowed promoters to sell stake through auction instead of public offer, which is considered costlier and time consuming.

ONGC is to be among the first companies to take advantage of the new auction route on stock exchanges that has to be closed in a single day.

The Centre is currently looking at all options to boost its revenue collections as the fiscal deficit may be more than 5.5% of the gross domestic product (GDP), compared to the Budget target of 4.6%. There exists at presnt a shortfall of nearly Rs 1.5 lakh crore due to missed divestment target, higher subsidy bill and lower than estimated revenue collections on the direct tax front.

Stake sale in ONGC may fetch around Rs 12,000 crore and together with the Rs 1,145-crore proceeds from PFC disinvestment, the government could be able to raise over Rs 13000 crore in the current fiscal 2011-12. Besides, initial public offer (IPO) of NBCC is likely to bring around Rs 250 crore to the exchequer.

Auction Method

The auction method may be used for all those cases where the cabinet committee on economic affairs CCEA has given its nod for a follow-on-public offering.

The capital market regulator SEBI had on 1 February issued detailed guidelines for the offer of sale of shares by promoters through the stock exchange mechanism. The offer for sale route is available to promoters/promoter group entities of such companies that are required to increase public shareholding to meet the minimum public shareholding requirements under the Securities Contracts (regulation) rules. It is also available to promoters/promoter group entities of top 100 companies based on average market capitalisation of last completed quarter.