Poor interest from the private sector in the shares of one of the country's largest private sector firms could disrupt the Government's disinvestment plan, says a Moody's report.
Referring to the fiasco in ONGC's offer for sale, the report said that such lack of interest could dampen the Government's hopes of closing its fiscal deficit gap through public issues. “The result of the ONGC auction tempers this (of bridging the fiscal deficit) expectation and highlights how the Government's own weak finances and policies tarnish the perceived value of the companies it owns,” the report said.
In the last two months, the BSE Sensex rose by about 14 per cent which raised hopes for the equity markets. This then prompted the Government to announce the ONGC offer for sale. However, the issue did not garner the expected response and came under heavy scrutiny over the dubious manner in which the issue was dealt with.
Higher price
“One of the reasons investors stayed away from the auction was that the shares the Government offered were priced higher than ONGC's market price at the time. In addition, investors also raised concern that ONGC's profitability could be imperilled by the Government's energy subsidy policy and its plans to employ the cash balances of public enterprises to shore up government finances,” said the report.
The report further adds that with poor private interest in purchasing Government stakes in State-owned companies, the Government may now be looking at the possibility of requiring cash-rich public companies to buy the government's stake in other state-owned enterprises. “This would transfer cash to the Government and increase cross-ownership of public enterprises. However, this strategy departs from the original aim of disinvestment, which was to garner revenue from the private sector,” the report added.