ONGC to discuss bonus issue on Thursday to up liquidity

The board of state-owned Oil and Natural Gas Corporation (ONGC) will on Thursday consider issuing a bonus share to increase liquidity ahead of government disinvestment.

With all of its about Rs 14,000 crore cash committed in future projects and capital expenditure, the company is considering issuing bonus shares rather than cash dividends as a method of providing income to shareholders.

The board on October 27 will consider the second quarter financial results as also “consider a proposal for declaration of bonus issue”, the company said in a regulatory filing.

Issuing bonus shares increases the issued share capital of the company, which is then perceived as being bigger than it really is, making it more attractive to investors.

When a company issues bonus shares, the price of its existing shares comes down by about the same ratio as the bonus shares that have been issued. So, if the bonus issue is 1:1, which means they are issuing one additional share for each existing share, the market price of the share will roughly halve.

ONGC had in December 2010 issued 1:1 bonus share along with a special dividend of Rs 32 per share and a stock split. At that point, ONGC equity share of Rs 10 face value was split into two of Rs 5 face value.

This was done as a precursor to the company’s planned follow-on public offer (FPO) in the following year.

The government is considering divesting at least 5 per cent of its shares through an FPO this fiscal to raise about Rs 12,500 crore.

Prior to that, the company had in 2006 issued a 1:2 bonus issue.

The government holds 68.93 per cent stake in ONGC, the nation’s biggest oil and gas explorer and the most profitable public sector unit.

The ONGC stock closed up 4.6 per cent at Rs 292.90 on BSE today.

Oil and Natural Gas Corporation Limited (ONGC)