Despite the ONGC fiasco, the Government may still use ‘offer for sale on stock exchange' or ‘auction method' for divesting its stake in Steel Authority of India (SAIL), BHEL and NALCO.
On the other hand, proposal for SAIL divestment is being revised to cover only disinvestment by the Government as the company's board has decided it does not require raising capital. This method, if decided to be used for other companies, will be open for all categories of investors be it institutional, high net-worth individuals, retails and employees like ONGC issue. However, Government officials have ruled out any discount for retail or employee investors or suspension of trading in the secondary market during the auction method.
The Cabinet Committee on Economic Affairs (CCEA) approved disinvestment of 5 per cent Government equity on August 30, 2011. Earlier on April 8, 2010, the CCEA approved offloading 10 per cent Government equity (in two tranches) and raising additional resources by issuance of 10 per cent fresh shares (in two tranches) for SAIL.
Inter-ministerial discussion has been initiated for diluting 10 per cent Government equity in NALCO before taking it to the CCEA.
A senior Government official told Business Line , “We plan to put up the detailed analysis on result of auction method in ONGC disinvestment and to seek directions on using this method in other companies before an Empowered Group of Ministers.”
Explaining the rationale behind the insistence on auction method, he said, “The question is whether we want to take care of existing shareholders or focus on bringing more and more new investors. Our opinion is for existing share holders and that is one of the reasons for choosing the auction method.”
The traditional method of follow on public offer (FPO) allows discount for retail or employee quota which is like disincentive to the existing shareholders, he said. On the other hand, with a long process in FPO, shares in the secondary market face hammering. This is also not good for the existing shareholders, he added.
On the other hand, the new method is less time-consuming and cost is very low. “In fact, the time to complete the entire process of auction method could be as less as one week, while there is no need to spend on merchant bankers or road shows,” another Government official said.
The officials are also trying to dislodge the perception that retail investors are wary of the auction method. Even in ONGC auction method, 92 bids were received from just one share, while there were good numbers of bids for 100-200-300 shares out of total of 3,000 bids.