Viewed through the framework of ownership profile and management control, the Government's maiden attempt at divesting its equity in public sector undertakings through a new secondary market auction-based offer-for-sale route has come a cropper. Thursday's auction of 42.77 crore ONGC shares held by it, representing 5 per cent of the oil behemoth's equity, received very poor investor response. About ten minutes before closing time for the offer, data on the BSE and NSE websites showed buy orders for only 1.44 crore shares, which suddenly rose to 29.22 crore by the end. Then came a late night joint statement from the two exchanges, claiming the final demand at 42.03 crore shares. The earlier low figure apparently did not include orders “erroneously rejected” by custodians despite being fully funded by the bidders. Going by that, the offer was a success, mobilising some Rs 360 crore more than the targeted Rs 12,405 crore at the floor price of Rs 290. However, it was made possible only by Government-owned institutions, namely Life Insurance Corporation of India (LIC) and State Bank of India (SBI), which subscribed to bulk of the offer. It is quite likely they were nudged to do so. Even if they weren't, the fact is that the Government ended up selling shares not to private investors, but to other entities also owned by it. That does not amount to any genuine disinvestment reducing the Government's effective role in business.

So, what went wrong? It couldn't be the price, as contended by market intermediaries. The floor price was well below that dictated by global norms of valuation in the natural resource extraction business. The size of the offer was the main problem: The Government was seeking to mop-up almost Rs 12,500 crore on a single day, not just from a stock whose five-year average daily turnover was only Rs 170 crore, but even from a market where daily cash trades in all equities total around Rs 10,000 crore. Throw in the fact that the intermediaries had no incentive to push the offer among investors (as they were not getting any fees), the tepid response was all too understandable. The Government may claim that opening the auction window for a longer time would have exposed the stock to bear hammering. But that misses the point about the real benefit of the newly created offer-for-sale mechanism: It enables promoters to offload small tranches of their holdings via the stock exchanges through a fast-tracked system, avoiding the elaborate processes of normal book-building public offers. It may not be amenable, though, for raising Rs 10,000 crore or so in a single go, as much as spreading out the offers over a period.

The Government has actually been a victim of its own inaction of the past few months and is suddenly waking up to the need to shore up its finances. It can forget about meeting the disinvestment target of Rs 40,000 crore for the current fiscal. Even LIC or SBI may not have any more headroom to bankroll the Government's plans for other candidates waiting in line.

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