OGDC: THE IMPACT ON TRADING

 

The OGDC's public offering would augment the volume of the capital market by Rs 7 billion

By AMANULLAH BASHAR
Nov 03 - 09, 2003

The Initial Public Offering (IPO) of Oil and Gas Development Company (OGDC) is scheduled during November 10-14, 2003.

The government plans to sell its 2.5 percent stake in this one of the most financially strong state-owned entities. It is going to be the biggest IPO during last 9 years. Prior to that period, the government had offered 12 percent stake in the state-owned company i.e. Pakistan telecommunications. According to official announcement made by Karachi Stock Exchange (KSE), the OGDC was provisionally listed on October 29, 2003, while public subscriptions will start from November 10 to November 14.

A total of 107.5 million OGDC shares will be sold at a price of Rs32 each through the stock offering, with a green shoe option that may add another 2.5 percent stake taking the total size of the offering to 215 million shares.

This huge oil empire in fact besides having a strong financial back up has many other attractions in the store to offer to the investors including a series of successful oil and gas explorations in different parts of the country.

OGDC had paid a capital of Rs43 billion. It carries the largest share of oil and gas reserves in the country which are estimated to the tune of 48 percent of total oil and 37 percent of total natural gas reserves.

In view of the strong financial background, the offer is likely to have an overwhelming response of the investors. The experts are of the opinion that it may repeat the past experience of the National Bank shares and more shares may be off-loaded through stock exchange by the government in future. The second phase of the company's privatization also includes the sale of minority stakes in the state-run OGDC internationally through global depository receipts.

It is interesting to watch that the shares of OGDC are being offered to the public at a time when the stock market is passing through disturbed waters as the trading at the share markets has been quite uncertain for sometimes. Under the prevailing situation, it is yet to be seen that how this new arrival makes its impact on overall trading scenario of the stock market. Prior to the chain of quick changes taking place at the stock market, some leading brokerage houses were of the opinion that the KSE index may hit the all time high 5000 points at the end of the current financial year. However, this estimate was seen a little bit shaky in the backdrop of a sudden change in the instance of neighboring India. The situation however took a change when some positive developments such as yet another offer of reconciliation extended by unpredictable leadership of India, growing bilateral relations with China and Iran.

According to official version, the OGDC's public offering which is sure to lead to green shoe option which means the sale of 5 per cent stake of the government would augment the volume of the capital market by Rs 7 billion. Its complete enlistment of shares on all stock markets would enhance capitalization from $17 billion to $20 billion making it a market worth consideration by foreign investors.

Total OGDC shares could have a gross volume of Rs137 billion, however, the situation regarding its strategic sale would be clear by the year-end. The privatization of public sector entities is the best way out for enhancing ownership base and the same time add to market's depth of capitalization. The privatization was bound to payback handsomely to the national economy in terms of better output of key institutions.

Being a profit making entity, OGDCL would get response for its IPO and set a healthy trend for future privatization of the government's stakes in the public sector organizations. The government on its part claims to strictly follow a policy of free market wherein the government's role would be that of a facilitator and the regulation would rest with an independent regulator.

Recently, the Manging Director of OGDCL, Najam Kemal Hyder, while projecting the performance and technical expertise of the company in the oil and gas sector said it operates in the three provinces of the country. These provinces are including NWFP, Sindh and Punjab. OGDC also operates in the Northern Areas of the country and never gave up any of its projects on security considerations.

Currently, OGDC is actively engaged in completing its ambitious exploration plan for the financial year 2003-04. In fact, OGDC has a number of exploratory projects in hands which it plans to start next financial year. Meanwhile, the government has directed that public offering of more state owned entities like SSGCL, PIA and Kapco shares should be processed expeditiously. The instructions have already been issued by the Ministry of Privatization. The mode adopted for the divestment of shares of various public sector entities through stock market ensures the transfer of the benefits of privatization to the people of this country besides helping in developing a deep and broaden capital base of the country.

One of the major reasons behind uncalled for delay in privatization of the public sector organizations must the elements having vested interests. Since, the privatization of the public sector organizations hits the interests of the people enjoying a princely life at the cost of the people. Such elements will now be answerable to the share holders in future.