ONGC FPO deferred ???

If some news report are true then it looks like on account of pricing difference with i-bankers, government has decided to defer ONGC FPO by 15 days. Government wanted FPO price band to be closer to 280 whereas i-banks were saying price of 240-250. I don’t know what will change in the next 15 days. Everything has been turned into a joke by this government. ONGC FPO has been deferred several times. In this volatile market, who will buy ONGC at Rs 280 ? I guess only LIC and Public Sector Banks (PSB’s). If government wants so, they can do private placement as well. I guess there are better stories in market than buying ONGC at 280. First of all you, can’t decide on subsidy sharing formula and continue milking company as per your whims and fancies. Arbitrarily you change subsidy burden of upstream companies from 33% to 38.8% and expect market to pay top dollar for issue. May be government is expecting that market will realize true potential of ONGC in the next 15 days and they will be able to price issue at 280 rupees.

I was positive on ONGC issue at 245-250 rupees and at that price it was a compelling long. In fact, I am long on ONGC (bought one November future) and was planning to build further long positions after FPO price band is declared. I also sold ONGC 280 call (thankfully I have not written any naked call). It’s a covered call strategy. But surely I won’t buy ONGC shares at 280 rupees. Hope better sense prevails in Delhi and the issue is priced attractively.

Its ONGC again..

In some of my previous posts, I had criticized government for pursuing FPO programme. But it seems that with lagging behind schedule on divestment programme, government is keen to dilute stake in ONGC. PSU giant filed for RHP with SEBI yesterday. As per reports, issue is expected to open on September 20 and close on September 23. Issue proceed will help government to do some patchwork with its Fiscal deficit. Clarity on subsidy sharing formula could have helped fetch better FPO price, but government has political compulsions.

Due to FPO overhang ONGC share price had range bound movement for past several months, 290-295 being the upper limit and 260-265 was the lower limit. At the start of September series, I had sold ONGC 320 calls. But now with FPO scheduled to come in next 15 days, its share price movement should be restricted between 240 and 280. I have sold ONGC one 240 put and two 280 call (in 1:2 ratio). Not exactly strangle and I am not sure what would you call this strategy. In this strategy, I will make loss below 232.5. I am expecting FPO price between 240-250 with 5% discount to retail investors. I am confident ONGC share price will not cross 280 in this series but I am not sure about lower limit. FPO price will decide lower limit. In case FPO price is less than 240, I will go long and buy its future.

ONGC FPO Option strategy

Overall I am bullish on ONGC. In case of any sharp fall in market across the world, crude will also fall and PSU will benefit from it. It is difficult for me to imagine ONGC falling substantially from current levels. Among all the analyst tracking ONGC, not even one has sell rating and overwhelming majority (more than 80%) has buy rating on it (average price target more than 300).