October 2, 2003	Thursday	Sha’aban 5, 1424

KARACHI, Oct 1: The Privatization Commission on Wednesday announced that shares in Oil and Gas Development Company Limited (OGDCL) — the largest oil and gas exploration company in the country — would be offered for public subscription at Rs32 per share.

With the prospective offer of 215 million shares, the Initial Public Offering (IPO) of OGDC would be worth Rs6.9 billion. That would make it the second biggest stock offering in the history of the Karachi Stock Exchange, after Pakistan telecom’s entry into the capital market in 1996.

OGDCL also follows the telecom in terms of net earnings: For financial year 2002, PTCL had made profit after tax at Rs19.8 billion and OGDCL chased the telecom by posting net profit at Rs16.8 billion — the second highest profit made by any company in the country.

The stalwarts at Pakistan’s equity markets had been consistently urging the government to divest its promised holding in OGDCL to deepen the market. No specific date for the OGDCL IPO was announced on Wednesday, but based on earlier pronouncements by the Privatization Commission, market figured out that the issue could come up in the third or the fourth week of the current month.

S. Faiz Jalal, consultant to the Privatization Commission, stated that applications would be accepted in lots of 1,000 shares and multiples thereof and preference would be given to those who apply for the minimum lot of 1,000 shares. He stated that in case of oversubscription, each application would be entertained to the extent of 1,000 shares and the remaining shares would be allocated on pro rata basis.

However, if application for 1,000 shares would be in excess of the offered amount, the shares would then be allotted through balloting. “There shall be no restriction on exercise of the ‘green shoe’ option and the Privatization Commission may exercise that option as it deems fit keeping in view the number of applicants and market sentiment,” the consultant concluded.

Most analysts thought that the pricing fixed by the Privatization Commission was astonishingly attractive. Owned entirely by the government, the total number of outstanding shares in OGDCL had recently increased from 1.08 to 4.30 billion, after the announcement of stock bonus at 300 per cent for the current year.

The government proposes to offload 2.5 per cent of its holding in the company. But if it were to exercise the ‘green shoe’ option, the total float would work out at 215 million shares. Analysts at stock brokerage firm InvestCap calculated that to raise the proposed Rs6.9 billion, total number of applications in the minimum lot of 1,000 shares would have to be 215,000.

“Given the trend in an earlier offer this year, where around 70,000 small investors participated, the number of required applicants, looks tall,” said the analysts, but they hastened to add that the issue would almost certainly be oversubscribed. Why? Because high net worth individuals, investment bankers and fund managers were likely to seize the opportunity to lap up the stock. Fair value estimates of several analysts varied between Rs40 and Rs77, which meant that the share was being offered at an enormous discount.

Analysts at Capital One Equities observed that OGDCL was amongst the leading international oil and gas exploration companies in terms of its reserves status. Since its inception in 1961 to May 2003, the company had drilled 176 exploratory wells and 229 development wells. Additionally, it had discovered 44 gas fields with a success ratio for exploration at 1:3. Almost eight times larger than Pakistan Oilfields Limited (POL), OGDCL was understood to be currently holding the largest share of Pakistan’s oil and gas reserves — 50 per cent of total oil and 37 per cent of all the natural gas reserves in the country.