Small shareholders who may have managed Rs32,000 for 1,000 shares in the Initial Public Offering (IPO) of the Oil and Gas Development Company (OGDC) should have all the reason to be pleased with themselves.
The stock had been offered at Rs32 a piece, but in provisional trading it has already gathered a premium of more than Rs10 or Rs10,000 on an investment of Rs32,000. As figures of subscription still come pouring in, the IPO appears to have attracted more money than was expected by the best of stock picking gurus. The market is projecting final figures to run upto Rs38 billion, which would be more than five times the total IPO amount of Rs6.9 billion, including the greenshoe option that the government has confirmed, it intends to exercise.
The OGDC offer, which remained open for public subscription for five days—from November 10 to 14— was the biggest stock offering in the history of the Karachi Stock Exchange. Back in 1994, shares of the value of Rs 3 billion in Pakistan Telecommunication Company Limited (PTCL) were put up for public subscription, but that offer also was accompanied by a huge GDR issue. Even the Federal Minister for Privatisation, Abdul Hafeez Shaikh has proudly proclaimed: “The offer size as well as the subscription received in case of OGDC has no parallel in the history of the stock exchange. The transaction is the largest and most successful public offering to date”, he said.
The Privatization Commission had announced 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. 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.
But by the look of it, applications of all shareholders who have applied for a minimum of 1,000 shares hold fair chance of getting accommodated. Never mind if the same shareholder has filed a bunch of applications for the minimum of 1,000 shares as proxies, for their brothers, sisters, spouse, father, mother, grand parents (whether dead or live) friends and family—all absolutely legal, provided every application is supported by an ID card of the concerned person.
Including the ‘green shoe’ option, the total 5 per cent disinvestment of government’s fully held equity in OGDC, would work out at 215 million shares. To raise the proposed Rs 6.9 billion, total number of applications in the minimum lot of 1,000 shares would have to be 215,000. Shareholders applying for 1,000 shares may be comforted by the knowledge that it is a gigantic figure in terms of number of small shareholders.
And Mohammed Sohail, head of research at brokerage house, InvestCap explained why: “Recently the highest number of applicants in any equity offering was seen in the case of IPO of Pakistan International Container Terminal (PICT)”. He observed that PICT had attracted 73,000 applications and it has also to be remembered that the minimum amount asked for in that stock offering was Rs 5,000 only for 500 shares. Sohail estimates that given the investor enthusiasm noted particularly in the last two days, Thursday and Friday, and with record number of 17 bankers to the issue, one could optimistically look at applicants in OGDC to cross 100,000 mark.
Analyst expects total number of applicants to fall between 100,000 to 150,000, but certainly less than the required 215,000, which means that after all applicants for 1,000 shares have been accommodated the remaining shares would be allotted on pro rata basis. Faisal Potrik, head of research at First Capital Securities, assumes that there would be 150,000 applicants for 1,000 shares each, who would be allotted shares of the value of Rs4.9 billion.
The balance of Rs2.0 billion of the total IPO of Rs 6.9 billion would be allotted to ‘Jumbo’ applicants in the ratio of 10 per cent. Potrik mentions that the possible explanations of the IPO to have attracted such huge sum could be that Jumbo applicants had submitted bids much in excess of the amount that they desired, as the general consensus was that there would be over subscription.
“Another explanation being quoted is the fact that brokers have borrowed heavily from financial institutions to make a quick buck as they knew that over-subscription would push the price of the stock beyond the IPO offer of Rs 32 enabling them to make a quasi-arbitrage”, said Faisal Potrik. And the head of research at Global Securities, Asif Ali Qureshi thinks that the overwhelming response to the IPO, at a time when the stock market was off 16 per cent from its recent peak, was a manifestation of huge domestic liquidity and possibly overseas interest as well.
“This was despite the restrictive prudential regulations constraining banks’ investment in equities”, says Mr.Qureshi.
Formal listing of the OGDC next month would add around $3 billion to the KSE market capitalisation. It would deepen the market and broaden the base of stock ownership.
“Increased free float in larger stocks and selling market capitalisation on the back of new offerings shall strengthen the case of upward revision of Pakistan’s country weight in emerging market indices, which may prove watershed in reviving foreign institutional investment (FII) flows”, says Asif.
But why so much investor enthusiasm in the OGDC? Analysts at Capital One Equities explain that the OGDC 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 of 1:3. Almost eight times larger than the Pakistan Oilfields Limited (POL), the OGDC 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.