By Armina Hakobyan, Gokul Rajagopalan, Gopal Bethmangalkar, and Jeff West under the supervision of Professor Andrew Karolyi - 20 pages. Original version dated: 08/29/2012; current version: 04/08/2015.
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On September 5th 2011, the government of India had filed a secondary issue of 5% of its stake in the state-controlled Oil and Natural Gas Company (ONGC) of India to raise US$ 2.5 billion to help fill dwindling government coffers. One week later, the Chinese government issued diplomatic protests directed toward India over the continued exploration by ONGC in Blocks 127 and 128 off the Vietnamese coast in South China Sea. Many years of conflict between China, Vietnam, and other Southeast Asian countries over territorial rights in the waters of the South China Sea had escalated, with a high potential for the conflict to boil over in regional and even global instability. Would the stock offering go ahead as planned?
ONGC was founded in 1956 by the government of India under the provisions of a legislative act to develop, produce and sell petroleum products within India. Starting with a few oil fields in Digboi in northeast India, ONGC transformed India’s upstream sector by developing onshore fields in the western state of Gujarat and the Assam-Arakan Basin in northeastern India. In 1989 ONGC established ONGC Videsh (OVL), a 100% subsidiary to control overseas assets. Since then, OVL has won exploration and drilling rights and has expanded operations globally to over 33 projects in 14 countries. ONGC is currently ranked second worldwide among global exploration and production companies, behind the China National Offshore Oil Corporation, and has a market capitalization of US $47 billion, making it India’s second largest company.
Despite the growth ONGC has showed over the last couple decades, Chinese diplomatic protests can still threaten the security of ONGC’s assets and create doubts in their investors’ minds. The Indian government has an important decision to make: given that previous equity issues of energy companies in India were highly oversubscribed, should the government proceed with the secondary offering?
This case provides students the opportunity to evaluate a very sensitive and controversial dilemma involving several emerging markets countries. Both countries have a lot at stake, and students can fully appreciate just how complicated international affairs are.
- Emerging Markets Corporate Strategy
- International Finance
- Corporate Valuation
- Secondary Equity Offering
Southeast Asia; Vietnam; India, China.
Supplementary Materials Available
Teaching Note (Upon request from the case supervisor)