ONGC seeks Rs.400cr cover against compensation claims

Oil & Natural Gas Corporation Ltd. | Oil Exploration | Oil & Gas | BSE: 500312 | NSE: ONGC

13 Sep 2011 Evaluate

Oil and Natural Gas Corp. Ltd (ONGC) is seeking a six-year insurance cover of Rs.400crore against potential compensation claims from shareholders as the government prepares to sell 5% of the firm’s shares in the market to raise at least Rs.10, 500 crore. It is the biggest cover sought by any public sector company in India for a share sale. State-owned Coal India Ltd (CIL) bought a cover of Rs.200crore for its Rs.15, 200 crore initial public offering (IPO) of shares last year. The size of the cover reflects the management’s perception about the accuracy of disclosures and the company’s ability to fulfill commitments made in the offer document for the upcoming share sale.

The cover depends on the degree of risk perceived. The so-called public offering of securities insurance policy typically covers share issuers against claims made by subscribers for misleading forward-looking statements and insufficient or erroneous disclosures made in the issue prospectus, which could be legally proved to have caused financial loss. Under the draft policy being discussed with insurers, ONGC will pay claims of Rs. 90 lakh from investors in the US and Canada, and up to Rs.50lakh to settle claims from shareholders outside these two countries. The thumb rule is to seek a cover of 1-1.5% of the amount being raised (through the share sale), but ONGC is seeking a much bigger cover by that standard.