It is a fair price, and not the method, that could ensure success in the government's disinvestment drive, market experts feel in the wake of the ONGC share sale by an innovative auction barely scraping through last week.
After many initial hiccups and then an intervention by the government and market regulator Sebi, sale of about five% promoter equity in public-sector behemoth ONGC sailed through on March 1, fetching about Rs 12,700 crore to the exchequer in its disinvestment kitty.
This was the first time that a one-day auction method was tried by the government in its disinvestment drive and it was widely expected that a success for the ONGC issue could lead to shares being sold in other PSUs through this method.
However, a tepid response to the ONGC shares from investors other than state-run entities has led to questions being raised about this unique auction route.
The market analysts, although, do not find fault with the method as such and say that the poor response should be mainly attributed to a high floor price fixed for the auction.
On the same day, the Union Cabinet also approved a share buyback route for its disinvestment programme, under which cash-rich PSUs could purchase the government's stake and help meeting its disinvestment target.
"The government is trying every way possible to meet the disinvestment target. The instrument for ONGC stake sale was good but, the only problem was the pricing of the offer," SMC Global Securities Strategist & Head of Research Jagannadham Thunuguntla said.
"If the issue is properly priced there would be lot of demand. We had expected a discount in the floor price but, Rs 290 per share came as a surprise," he added.
On the day when the auction was taking place at this floor price, the ONGC share price had slipped below Rs 290 in the normal trading at the NSE and the BSE.
On the traditional ways like IPOs and FPOs for share sales, Thunuguntla said these were relatively more time taking processes and require at least 4-5 months to complete.
The auction route is good as long as pricing is done appropriately, he added.
Faced with a tepid response, the offer for sale of 42.77 crore ONGC shares - at a floor price of Rs 290 a share - had to be rescued by LIC, which is said to have put in a vast majority of the bids.
As against its disinvestment target of Rs 40,000 crore for this fiscal ending on March 31, the government has so far managed to garner around Rs 14,000 crore.