India falls short in $2.5bn ONGC share sale
Mumbai, March 2, 2012
India fell just short of its target in a chaotic $2.5 billion auction of shares in Oil and Natural Gas Corp, getting off to a faltering start in its bid to revive government stake sales to patch its widening fiscal deficit.
The country's two main stock exchanges said late on Thursday that investors bid for 98 percent of the shares on offer, dashing expectations that it would all be snapped up.
"It will be a huge disappointment for the government that the issue was not fully covered, and this will lead to lot of rethinking on the privatisation drive in the near-term," said Juergen Maiar, a Vienna-based fund manager with Raiffeisen Euroasien Aktien.
The floor price for the auction had been set at 290 rupees late on Tuesday, a 2.3 percent premium to the day's closing price, prompting criticism that it should have been priced at a discount to ensure success.
Still, market watchers had expected big institutions like state-run Life Insurance Corp of India (LIC) and State Bank of India to take up any shares in the event of weak demand.
"I think greed played out here. This should be one of the lessons -- not to try and price the offering at a premium, especially when a reference point is available in the market price," said Ambareesh Baliga, chief operating officer at Mumbai's Way2Wealth Securities.
Market commentators slammed the government's handling of the long-delayed sale, which was conducted via auction on the stock exchanges -- a first-of-its kind process in India that seeks to avoid expensive roadshows and save time.
"The ONGC issue should have been priced at a discount and planned out well, which would have created a positive sentiment for future disinvestments," said Sunil Jain, vice president of equity research at Nirmal Bang.
Under India's auction process, if the offer is not fully subscribed, the seller has the option either to accept the bids received or reject the entire auction process. India's deficit-strapped government is expected to accept the bids.
A government official said details of final bids were delayed by a system glitch caused by a lot of last-minute orders. The stock exchanges said order levels at the close of the auction earlier in the day had reflected demand of only about two-thirds of the shares on offer because some orders were erroneously rejected by custodians.
The government had offered 427.77 million shares, or 5 percent of the company's equity, in an issue that ranks among India's five biggest equity offerings. The auction saw demand for 420.3 million shares. - Reuters