Oil & Natural Gas Corporation (ONGC), the country’s largest company by profit, has made a case for a two-for-one stock split ahead of its proposed follow-on public offering (FPO) next year. It feels this would make the issue more affordable for retail investors.
After the stock split, the price of each ONGC share would be halved, while the overall market capitalisation remains unchanged. “We have made this (stock split) suggestion to the government. A stock split will increase retail interest in the company’s stock,” ONGC Chairman & Managing Director R S Sharma told reporters.
A formal decision is yet to be taken by the company’s board and the government on the ONGC stock split. The proposal will also need shareholder approval. The Centre has already decided to split the stock of MMTC, which is also expected to come out with a public issue sometime next year.
At today’s market price of Rs 1,318, a two-for-one split will bring down the price of an ONGC share to more affordable Rs 659. “The share split will not make any difference to the government, company or high net-worth individuals. But since the ONGC scrip is priced high, a split will enable retail investors to apply for more shares for the same amount of money,” explained Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities.
Since large private-sector listed firms don’t come out with follow-on issues and prefer the qualified institutional placement route, the stock split is largely unique to government companies. It is also in line with the Centre’s philosophy of using disinvestment to broaden public holding.
The government, which has a 74.14 per cent holding in ONGC, plans to sell 5 per cent of its shares to raise up to Rs 15,000 crore. Its 2004 initial public offering, through which the government sold 10 per cent equity, raised around Rs 10,000 crore. Subsequently, the company had a bonus issue in 2006, wherein shareholders were issued shares in the ratio of 1:2.