Introduction To Business Finance

OGDCL’S Secondary Public

Offering -2007
Term Report
Submitted to Ms. Sana Fatima

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 2 N D 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