KARACHI, Jan 18: The secondary public offering of shares in the Oil and Gas Development Company (OGDC) at Rs110 per share in the local markets looks like having received lukewarm response from small investors, but analysts believe that the offer would nonetheless, be over-subscribed as institutional investors would have made a swoop to pick up what remains after the minimum lots have been satisfied.
The subscription list was open for three days, from Jan 11 to Jan 13.
An official at the Privatisation Commission (PC), which had offered 21.5 million shares (0.5 per cent of total outstanding shares) for domestic investors from the government holdings in the company, observed that all branches of as many as 12 banks (Allied Bank, MCB, Askari, NBP, Bank Alfalah, PICIC Commercial Bank, Bank Al-Habib, Standard Chartered, Faysal Bank, BoP, HBL and UBL) had been authorised to collect applications, which means it would inevitably take a while for the figures to be compiled and presented.
The public was offered shares at Rs110 per share (at a premium of Rs 100 per share). The PC said that the retail offer price represented an effective discount of almost three per cent over the price offered to international investors in the recent sale of 409 million shares in the form of GDRs.
The bid to international investors was made at Rs115 per share after adjusting for the company's first quarter dividend payment of Rs1.75 per share, which would not be available to participants in the retail offering.
Applicants to the retail offer were authorised to apply for 500 shares or multiples thereof. Thus, the minimum cost per application (500 shares) worked out at a huge Rs55,075.
Managers at some of the randomly selected branches of various banks said there was no beeline for filing the applications.
An argument against that could be the thin spread due to eligibility of thousands of branches of a dozen banks that were authorised to collect applications.
But a punter put forth two reasons for his disenchantment with the offer: “It would have blocked more than a hundred thousand rupees if I had submitted two applications — for myself and the spouse”, he said and added: “What did I hope to get in return.” He pointed out that at the market the OGDC stock was trading at Rs117 on Jan 13, which effectively meant a maximum gain of Rs7 and if the stock were to take a dip due to dilution of equity, even less. He thought that was too much of a hassle for too small a gain.
But most stock strategists thought that such was the short-term, speculative perspective. Local institutions (companies, bodies corporate or other legal entities incorporated or established in Pakistan) who were belatedly allowed to participate in the public offer, were likely to look at the long-term horizon. Any under-subscription by local retail investors would be distributed pro-rata to institutional investors. But an analyst thought that since the GDR subscription was also open for local funds, there might be little appetite left for them for the retail offering.
As a result of the primary IPO, the government had reduced its holding in OGDC to 95.52pc while after the GDR issue and under the current offering, the government holding would further slide to 85.51pc. Earlier in 2003, the government had already offloaded five per cent of the OGDC shareholding in the domestic markets through an IPO.
The domestic offer of 21.5 million shares would lift the total free float of the company, making OGDC the largest company in terms of free-float. The company stock also carries the heaviest weightage (20 per cent) in the KSE-100 index, which gives it the liberty to dictate the market direction.
Most analysts thought that the significant increase in free-float was likely to keep the price flat in the short term. But they tended to maintain a positive outlook on the long-term horizon. An analyst observed that at the price of Rs110, OGDC looked attractive on valuation relative to sector averages, as well as against regional averages. The stock offers attractive price-to-earnings ratio of 8.6x on FY07 earnings compared to the regional E&P companies p/e ratio of 11.2x.
The PC has announced that “If required” balloting to determine successful applicants would be held on Jan 23. That would be the date to watch for those who did and also for those who did not subscribe to the offer.