ONGC-bitten govt may go slow on auctions

Experts say LIC bagged up to 95% of subscription injecting over Rs 10,000 cr

Written by ENS Economic Bureau | New Delhi | Mumbai | Published: March 3, 2012 1:07 am

With the share sale in ONGC Ltd barely scraping through,primarily on the strength of last-minute interventions by LIC and public sector banks,the government has now decided to re-examine the new auction process before trying it out for other state-owned firms.

“This is the first case. We shall have to analyse and first make an assessment,” finance minister Pranab Mukherjee said. The system overhang theory floated by the government late Thursday night was debunked by the bourses,with the Bombay Stock Exchange and the National Stock Exchange issuing a joint statement late Friday evening claiming that the “exchange systems operated normally and smoothly and there were no glitches.”

The 5 per cent share sale in ONGC was the first instance when the government had used the auction method for divesting its stake in a public sector enterprise,coming at a time when investment appetite is seen to have picked up across both the primary and the secondary markets. State-owned firms including Steel Authority of India Ltd,Oil India Ltd and Bharat Heavy Electricals Ltd were expected to be disinvested using the auction route later this calendar year. For now,all of this seems to be on hold.

Without disclosing the list of institutional investors who bid for the issue,the finance ministry said that ONGC’s share sale garnered a total of Rs 12,766.75 crore at an average price of Rs 303.67 per share. “The volume weighted average price (of ONGC shares) was Rs 303.67 per share against a floor price of Rs 290,” an official release said. Sources indicated that the government,after the ONGC debacle,may not use the route for future issues. Further,another option of disinvestment through the buyback route has now opened up after Thursday’s Cabinet decision.

Till late evening on Friday,though,the market was still abuzz with guesses on the amount of investment done by LIC. Experts say that up to 95 per cent of the subscription i.e. roughly 40 crore shares have been subscribed by LIC. “We learnt that LIC has subscribed to shares amounting to over Rs 10,000 crore,” said a source.

Dalal Street experts expressed surprise on the fact that there was no marketing effort to sell the shares from the side of the government or merchant bankers. On top of this,the issue was priced at Rs 290 — at a premium as the market price was around Rs 283 on February 29. A section in the government had recommended a price of Rs 260 but the Group of Ministers fixed a higher floor price of Rs 290,sources said. There are some who are raising question mark over the way LIC participated in the auction. “When the floor price was Rs 290 and there was hardly anyone bidding,why did LIC bid at a premium of 4-4.5 per cent (average price of Rs 303.67). LIC needs to justify that,” said Arun Kejriwal,a senior analyst and market expert.

A lack of clarity on subsidies of the upstream oil major also kept away global investors as well as aggressive pricing are blamed for the subdued response.

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