Oil and Natural Gas Corp on Thursday reported 6 per cent rise in its second quarter net profit and announced a bonus share to increase liquidity ahead of government disinvestment. Net profit of Rs 4,974.92 crore in the July-September quarter of the current fiscal was 6.2 per cent higher than Rs 4,681.39 crore earning in the same period a year ago, the company said in a regulatory filing.
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ONGC also said its board approved issue of bonus shares in the proportion of one new equity share for every two existing ones of Rs 5 each. With all of its about Rs 14,000 crore cash committed in future projects and capital expenditure, the company favoured issuing bonus shares rather than cash dividends as a method of providing income to shareholders.
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.
Also, the board approved an interim dividend of Rs 4.5 per equity share for 2016-17. “The record date for the same has already been fixed on Saturday, the November 5, 2016,” the filing said. The ONGC stock was down 0.6 per cent at Rs 288.40 on BSE at 1350 hours.