When ONGC came out with its IPO, it promised an oil production of 49 million tonnes (MT) in 2011-12. Production is now stuck below 30MT
When ONGC, India’s biggest oil company, came out with its Initial Public Offering (IPO) in March 2004 and collected Rs 10,000 crore, the company had planned aggressive investment of Rs30,000 crore. In published reports and in a preparatory press conference seven months before ONGC’s IPO in March 2004, the director (exploration) of ONGC also promised massive increase in production. ONGC director (exploration) YB Sinha had said the firm’s current crude oil production of 26MT could go up to 49MT by 2011-12 and up to 62MT by 2016-17. Similarly, he had said that gas production could almost double from the present 65 million standard cubic metres per day over that period.
Unfortunately, this turned out to be a mere promise. Production has not increased substantially during the past five years. In fact, the production during the past three decades has been stuck in the range of 25MT-31MT, far from hitting 49MT as ONGC had promised before the IPO. ONGC’s annual report of 2008-09 says that crude oil production is likely to go up to 29MT by 2012-13 from the current production level of 25.4MT (2008-09). Industry analysts say that ONGC has drilled hundreds of wells during the past five years but could not raise its annual output. Meanwhile, the company has spent heavily on investment on new discoveries. Now ONGC is again planning another huge expenditure and needs large funding for this expansion.
The Indian corporate sector was in the habit of promising huge growth in sales and profits before making an IPO. The Securities and Exchange Board of India put an end to this practice so that investors are not misled. But a large public sector company has turned out to be equally guilty of promising but not delivering. .”
- Dhruv Rathi [email protected]
In a move that will change the mutual fund distribution game, the Securities and Exchange Board of India (SEBI) is likely to ensure that mutual funds are sold by stock brokers off their trading screens. The fund units will be lodged in the demat accounts of unitholders.
Currently, secondary market trading in stocks is compulsorily in dematerialized form, while mutual funds are sold through large nationwide distributors like banks and also small independent financial advisors. A top official in one of the largest Indian mutual funds told Moneylife that SEBI wants to encourage the fund industry to take the stock route (exchange-broker-demat) to resolve the problems of fund companies following SEBI's decision to ban entry loads that distributors used to get for pushing funds.
The entry load, which ran as high as 6%, used to come from the fund corpus itself. Ever since SEBI enacted this rule, new Fund Offerings (NFOs) are down to a trickle, despite the Sensex having climbed more than 120% since early March. The distributors, especially Independent Financial Advisors (IFAs), too have been left high and dry after the regulator abolished the load.
SEBI has been saying investors have to pay the distributors directly for the services they get and it is between them to negotiate what those services are how much to pay. SEBI’s latest thinking is likely to be welcomed by the fund companies which used to be powerless in front of large distributors like banks.
“Often distributors would recommend a fund to investors on which they earned a fatter commission, not the ones that are best-suited for the investors” says the Chief Investment Officer of the one of the top five fund houses.
“The balance of power was much too against us. SEBI’s move had rightly changed the balance of power. The distributor network remains important to us. But we would certainly welcome a move that allows us to reach 1500 towns at one go, through the broking network.” - [email protected]