North Block not to ease PN norms for ONGC issue

The finance ministry has ruled out any relaxation on participatory notes (PN) to prop up investor interest in the forthcoming public issue of Oil and Natural Gas Corporation.

Senior government officials said there has been no discussion between the ministry and the Securities and Exchange Board of India to make any change in the rules banning use of PNs for unregulated entities for investment in stock markets.

The government' stand comes in the context of demand raised by some merchant bankers that there should be a relaxation of the rule that was put into place last month. Bankers had said this was necessary to raise the level of activity by foreign institutional investors in the stock market.

Government officials said while any move to relax PN norms will definitely boost the market, it will necessarily mean a change in the policy. They said existing market conditions did not warrant such a change. The market regulator has also not asked for it, they added.

The Sebi notification banning PNs says that with effect from February 3, 2004, they can be issued only to regulated entities. Also, any entity which had issued PN to unregulated entities, such as hedge funds, will have to wound down or allow expiration of all such notes within five years.

In the last week of February, the markets showed a lukewarm response to the sale of government's residual stock in four companies, including IBP and IPCL.

In response, disinvestment minister Arun Shourie had said that the government had information that a bear cartel was attempting to hammer down prices, which caused investors to shy away from picking up the public offers.

While the tempo of subscription has sharply recovered, the government's worry on the score is still not over. This is because the largest issue of the current series of disinvestment, the public offer to sell 10 per cent of the government's stake in Oil and Natural Gas Corporation is slated to hit the market on March 5.