Corporate Actions That Make You Go Hmmm…

Hmmm… I am so dumb that some Mr. Sachs can sway me or fool me from my own ability to think? Let us see….

I have owned ONGC stock since 1999 and that is because it has been meeting (and exceeding) my buying objective. I will get rid of ONGC the day it fails to meet my purpose and my portfolio objective.

Recently, Goldman Sachs down graded the rating of ONGC stock with the target price of below Rs. 600. I do not have any liking for ratings given by these so called investment firms or advisors. I flush these rating down the drain before even I can bat my eye lid. However, in this particular down grading, I was flustered (to put it mildly) with the type of the comments and observations that were made against ONGC. The negative observations were:

  • Overseas growth strategy largely not bee effective
  • Unexciting execution track recod in domestic business
  • Rising costs in aging domestic fields; limited focus on cost control
  • Long running corporate governance issues
  • ONGC structurally unattractive – Lower oil price and limited upside from oil price rebound

These comments came from an US corporation whose resume looks as this:

  • This firm has been rating US banks and large corporations (like GE, BAC, C) as A-grade or BUYs for full 2006 and 2007. Whole world knows what happened to US banks and GE. What is the credibility of this rating?
  • ONGC may not be a great corporation as per your delusion US standards, but it is still one of the most profitable corporations in India. It has not gone bust yet.

  • In order to survive, this firm overnight converted itself to a ‘deposit holding bank’ (instead of an investment bank) so that it can have access to federal low interest rate lending.
  • Instead ONGC paid the largest shareholder (Indian government) from its profit. What’s wrong in paying the shareholder?
  • This firm made a first loss in its history, and it goes begging to US government for capital infusion. It gets USD 10 billion dollars of US tax payer’s money. And all because few C-suite executive became greedy and made risky bets.
  • Instead ONGC executives use prudent process to manage long term profitability and sustainability. Not to mention it more than fulfils its social responsibility.
  • As if getting direct capital infusion was enough, this firm took money from government through AIG’s bail out. And it could do this because its ex-executive was in the government.
  • Instead ONGC shares similar dividends and profits with government and its low stake shareholders. It does not funnel money out of tax payers.
  • Ironically, this firm allowed a Chinese oil company to re-bid (after closing of bid) for buying Central Asian Oil Company. ONGC was not allowed to re-bid. There has been no explanation on this action.

  • Neither Indian government nor ONGC made any fuss about it.
  • Its c-suite executives have earned billions of dollars of bonuses between 2004 and 2007. And they have brought the firm to its knees or had to take money from US government to survive. They let go the bonus in 2008 and make a huge publicity media stunt that they will not take bonus. Yeah right, buddy your firm made a loss in 2008, and you still want bonus?

  • ONGC executives get paid in peanuts compared to your bonus packages. ONGC executives do not proclaim their packages.

So with this excellent resume, do you really think Mr. Goldman Sachs has any credibility to comment on ONGC’s governance?

I continue to hold the stock and I hope Indian investors will give Goldman Sachs its run for the money. I would buy a little bit more of ONGC if it goes below Rs. 600. Thank you Mr. Sachs for giving me this buying opportunity!










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7 Responses to “Corporate Actions That Make You Go Hmmm…”

  1. Money Penny says:

    we should kick them out of our country. good article, it shows the truly reality of american companies. i wish our IT coolies and BPO labourers understand this

  2. vikrant says:

    i agree with whatever you have said tip guy, however these companied are in the business of investment and banking for years and years ( i have a different thought for banks like Sachs Morgans citi and so on) but the point i am trying to make here is NGC says”if you do anything in life for more than 100 years you become really good at it” what about these companies then, they are suppose to me masters of the word in wealth creation?

    • TIP Guy says:

      Vikrant,

      Wealth creation for whom? they are in the business of making money for their company. they are not out there for charity or doing good for somebody else. So their decisions are focused on how it helps them make more money.

  3. Rana says:

    I find it funny that a brokerage firm like Angel can come up with report on a 50yr+ company which has done excellent job in oil and gas since India’s early independence. What the heck Angel know about Oil/Gas industry? about an organization? Pathetic!!

  4. Bhaskar Jain says:

    Its interesting to note that these “research” analysts sometimes prepare different reports for different “class” of people. Recent public case was Punj Lloyd.
    (http://www.moneylife.in/article/8/5870.html)

    Perhaps it is one of the tools to move shares from weaker to stronger hands.

    • TIP Guy says:

      Hello Baskar,

      It happens all the time. They think they know all about businesses. Don’t get me, those folks are smart, but smart for themselves, they do all they can to make money for themselves. So they focus on clients who get most money. Retail investor do not pay them much…….

      Good link. Thanks.

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