ogdcl report
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Introduction To Business Finance
OGDCL’S Secondary Public Offering -2007
Term Report
Submitted to Ms. Sana Fatima
1/6/2011
Madiha Raza and Noama Naeem. BBA III
OGDCL- THE COMPANY OVERVIEW
OGDCL is probably the largest Exploration and Production Company (E&P)
in Pakistan that is engaged in the exploration and the development of the oil
and gas resources. These activities include the production and sale of oil,
gas and other related activities. It had been established in 1961 as a public
sector corporation which subsequently was converted from statutory
corporation into a public limited joint stock company with effect from
October 23, 1997.
Over the years OGDCL has evolved into a premium upstream company (i.e.
the oil and gas reserves exploration), whose strength now lies mainly in its
highly qualified professional human resource base. The Company has sound
technology and equipment including drilling and work over rigs, geological,
seismic and engineering crews, processing centers, pipeline construction
units etc. The Company is also involved in operating some oil and gas
processing plants, a mini refinery and LPG and Sulphur recovery units.
CAPITAL STRUCTURE
The company’s very first IPO was back in 2003, when the Government of
Pakistan divested 4.98% of its holdings to the public. OGDCL even then had
been listed on all three stock exchanges- the Karachi Stock Exchange, the
Lahore Stock Exchange and the Islamabad Stock Exchange.
The report that follows shall be covering in detail OGDCL’s second IPO or
the secondary public offering, back in 2007.
2007 OFFERING
Government of Pakistan decided to launch shares from under its holdings in
the company under what is called the secondary public offering by OGDCL
and what is coined as the term ‘second IPO’ in December 2006 -January
2007.
Before this offering, market capitalization of the company stood at Rs. 588
billion. Out of this the share capital of the company was Rs. 43.01 billion
divided into over 4.3 billion shares of Rs. 10 each. Out of the total shares, at
just over 95% shares were held by GoP, the rest are with the general public.
The public offering ever so marginally reduced GoP’s holdings in the
company to 94.56%. Public holding were to increase to 5.44%.
On December 1, 2006 the Privatization Commission (PC) announced the
successful completion of the management road show and book building
process for the domestic and international institutional offering of ordinary
shares and Global Depositary Shares (GDS) respectively, of Oil and Gas
Development Company Limited (OGDCL). The total number of OGDCL
shares offered by the PC was 21,505,000 million. The offer represented 0.5
per cent of OGDCL’s outstanding shares
LOWER-THAN-EXPECTED OGDCL OFFER PRICE
The first IPO (in 2003) has been of Rs. 32, the lowest price for the share
where it showed an overall high of Rs. 192 in March 2005. The lowest
OGDC came after that was Rs. 86. Now it was trading at Rs. 130 when the
secondary public offering was made.
The offer was priced at Rs115 per share. For the GDS it was for $18.90
each, representing 10 shares apiece that accounts approximately to Rs.
113.40 (the exchange rate then being approximately Rs. 60/US$ 1).
The retail offer price represented an effective discount of almost 3 per cent
to the institutional offer price even after adjusting for the Company’s first
quarter dividend payment of Rs1.75 per share. It was made unavailable to
the participants in the retail offering.
The market price then was Rs. 130 a share.
The offering price represented an approximate of up to a 9.5 per cent
discount on a day’s closing price which compared favourably with debut
GDR offerings for other Asian Companies at that moment.
IPO OF OGDCL OVERSUBSCRIBED- PREFERENCE CRITERIA
Not very surprisingly, the secondary public offering of Oil and Gas
Development Company Ltd (OGDCL) shares had been oversubscribed by 38
per cent according Privatization Commission’s statement in January 2007.
As for the details, the applications for the secondary offering of OGDCL
shares were highly oversubscribed- the applications received amounted to
Rs3.268 billion while the amount that was to be realized through this
offering was only Rs2.365 billion. The number of applications that had been
received was 34,758.
Out of those 33,715 applications were for the minimum number of shares
allowed- for 500 shares and the rest 1,043 applications for over 500 shares.
All applications that were for 500 shares had been accommodated as
promised. It was in accordance with the step initiated by government to
‘transfer the privatization benefits to the common man, as much as
possible’. Those of over 500 shares had been then allotted on pro-rata basis
as per the regular procedure. The shares were to be transferred to all the
successful applicants within 30 days after the balloting that was scheduled
to be held on January 23, 2007.
Commenting on the success of the offering of OGDCL, Zahid Hamid, the
Federal Minister for Privatization and Investment said that the
oversubscription of OGDCL’s domestic secondary offering was a significant
success and it sent strong signal of investors’ confidence in the Company
and the economic reforms and policies of Government of Pakistan.
MOTIVES OF THE OFFERING
The reasons for the offering were simple
Move towards the privatization of the organization
Expansion and strengthen its hold
OGDCL had raised the finance to drill more than 40 wells during 2006-’07.
It had planned to undertake various oil and gas field development projects,
including VCH 11, Tando Ala Yar, Sinjhoro, Dhodak, Dakhni, Chanda,
Qadirpur Gas Compression, Qadirpur Additional Gas Capacity, which were
already under implementation and have now further enhanced OGDC’s
production level significantly. OGDC has always also been seeking
exploration and production opportunities internationally.
OGDCL’S 2ND IPO’S SUCCESS AND ANALYSIS
The secondary public offering price, with transfer expenditure and financial
costs, it cost around Rs. 114. Taking these facts into consideration how was
OGDC worth investing?
OGDC is still the largest company in the oil sector in the country. Market
capitalization was Rs. 588 billion as at June 30, 2005, which increased to Rs.
590 billion. The company held the largest oil (37%) and gas (32%) reserves
in the country. The company enjoyed high shares in Pakistan’s total oil and
gas production i- 48% and 22%, respectively. All in all even back then it
sounded like a stable company to invest in.
To observe its performance we shall see few statistics available from the
financial reports of 2005.
A snapshot of the results reported by the company year ended June 30,
2005 are:
- Sales Revenue Rs. 96.8 billion
- Profit after Tax (PAT) Rs. 46 billion
- Total Assets Rs. 121.30 billion
- Earnings/share (EPS) Rs. 10.69
This was soon confirmed when the Board of Directors of Oil and Gas
Development Company Limited (OGDCL) on Wednesday announced a
second interim cash dividend at Rs1.75 per share (i.e. 17.50 per cent) for
the second quarter ended December 31, 2006. This was in addition to the
first interim dividend of Rs1.75 per share already declared during that
financial year.
The net income of the company for the first half (July-December 2006),
stood at Rs23.1 billion compared to Rs20.3 billion previously. This
represented a growth of 14 per cent in bottom-line.
The earnings per share (EPS) had jumped to EPS Rs5.37 from EPS Rs4.72
during this period. OGDC’s sales revenue posted 16 per cent increase and
reached Rs49.5 billion during the first six months of the fiscal year in which
offering was made.
Addressing a press conference here, Minister for Privatization and
Investment said the success of this offering sent a strong signal of global
institutional investor confidence on Pakistan and bodes well for Pakistan’s
growing participation in the international capital markers.
Better realized prices of oil and gas were responsible for this growth as
production remained flat at 160kboe.
The additional shares sold under have raised a further $100 million that
will, in accordance with the law, be used to pay the national debt and for
poverty alleviation. Once the retail offer has been completed, the total
proceeds of the transaction will amount to $811 million, making this the
biggest transaction by any Pakistani company in the last decade. This
offering has been very encouraging and is a strong signal of confidence by
foreign investors in today’s Pakistan.
CONCLUSION:
The current asset valuation depicts a strong company, posing no threats in
the future. Investment in OGDC post-impending correction is a frugal
decision. It is a strong belief that the oil sector will be a favorite pick for
FDIs some day, further boosting growth in the sector. OGDC has 21%
weight in the KSE-100 index, so some new highs can be expected.
REFERENCES
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