The government’s sale of about five per cent of its shareholdings in ONGC last week, through an open auction on the trading platforms of the two stock exchanges, raises several questions, which the government and its advisers would do well to reflect upon. For a successful auction of the ONGC shares on offer, two basic criteria needed to be fulfilled: a realistic assessment of the demand based on the prevailing market conditions and an attractive pricing for the investors. The government needed to receive appropriate advice on these matters. It is not quite apparent from the way the offer was managed if the government received such advice or whether it chose to ignore it. For instance, pricing the shares close to the market-traded price hardly made it attractive for the investors since they could buy them at around that price from the market. Moreover, an offer for sale that cannot be advertised publicly needs effective marketing and close monitoring by the owner-promoter. The outcome of the ONGC case does not demonstrate if serious attention was paid by the government to this critical aspect. It is possible that the government did not consider such promotion necessary because, in any case, it could rely on the benevolence and the coffers of the large institutions owned by it. In that case, there will be questions as to why it had appointed as many as six investment bankers for the auction and whether their roles and responsibilities were clearly delineated.
Though the auction was open for subscription for retail and institutional investors between 9.15 in the morning and 3.30 in the afternoon, the exchange data revealed that until ten minutes before the close of the auction, only around three per cent of the offer was subscribed. It is not clear how in a matter of ten minutes, the final demand miraculously ballooned to 98.4 per cent of the offer. Was it that the expected investors backed out of the offer, or was it that the state-owned Life Insurance Corporation, or LIC, was not adequately prepared to bail out the entire offer for sale? The explanation that technical glitches were responsible for the miracle is not convincing. ONGC is one of largest companies by market capitalisation. Governance standards for such a company demand complete transparency and this should be ensured by the Securities and Exchange Board of India, or Sebi. This exercise, by which an amount of Rs 12,600 crore was raised by the central exchequer, is effectively a transfer of ownership of an asset from the government to another state-owned entity. The question is: how would Sebi have viewed a similar transaction by a promoter of a private company?
These are important issues on which the government needs to deliberate. Merely instituting an investigation after the event and resorting to a witch hunt may only be a face-saving exercise. In the past, such investigations have yielded little result. The government needs to be more careful in planning similar exercises so that it can make better use of an otherwise effective mechanism.