Scooped down like a rocket, seconds after its launch; this is what happened to the ONGC’s offer for sale. Wrong time and to an extent wrong pricing has resulted in the under subscription of shares of India’s No. 1 company. In the end, the disinvestment ministry was able to procure nearly 8000 crores rupees because of the participation of ace insurer LIC and lead banker SBI.
ONGC’s successful open offer would have given government the much needed money to shorten its fiscal deficit. Simultaneously, the exercise would be a trend setter for the coming open offers of SAIL and BHEL through the newly introduced auction route.
There is no question that the floor price of Rs 290 was a competitive one from the long term perspective. But looking at the present macro trends and market fundamentals for the week, it is difficult to secure enough buyers at a premium price. The market was in a correction mood over the last few days because of the adverse GDP data, high interest rates and negative global cues. Unfortunately, the market especially, the FIIs were weighed down by marginal developments in the market.
So, setting a price at a discount near to the prevailing price would have been the ideal choice. It is felt that the disinvestment ministry and the merchant bankers have made less home work about open offers in the newly introduced auction route format. The pricing strategy is very important in instant exercises like offer for sales through the auction route where the market evaluate price on the basis of immediate inputs. The government in future should consider marginal market developments with due care while going for disinvestment through the institutional route.
The exercise also questions the pricing strategy of the offer’s merchant bankers. Citigroup, JP Morgan Chase, Nomura, DSP ML, Morgan Stanley and HSBC Securities were the investment bankers for the deal. They have failed to read the mind of FIIs is not a simple fault.