Call it a technical glitch or goof-up — but the end result was chaos and confusion. Oil and Natural Gas Corporation’s share auction fell marginally short of full subscription today. Against 427.77 million shares on offer, bids were received for 420 million, or 98.3 per cent.
However, the government raised Rs 12,766 crore, suggesting some bids came above the floor price of Rs 290 a share.
This came at the end of a day of high drama. While the exchange websites were stuck at a bid quantity of 14.3 million shares, exchange officials informed media houses the offer had closed with bids for 292.2 million shares received on both exchanges. Later, at 4.36 pm BSE sent out a release saying, "Bids are being reconciled with the funds received. Once it is done the final numbers will be published."
No further details were received till 9 pm, more than three hours after the scheduled time of 5.30 pm originally fixed by the exchange to come up with the final allocation list.
| HOW IT HAPPENED |
| * The problem arose because of the rejection of orders placed by LIC through the custodian (Stock Holding Corporation of India) |
| * The money came before the closing time after the placement of the order, but was rejected as the ‘self-funding’ button was pressed in place of ‘custodian funding’ |
| * As the order had come much before the closing time and the money had also come before time, the LIC bid was accepted only after the custodian confirmed there was an error |
| * The National Stock Exchange then accepted the order |
In New Delhi, after nearly six hours of closed-door meetings, additional secretary, disinvestment, Sidhartha Pradhan told reporters the delay in confirmation of the full subscription of the shares on offer was due to difficulties in uploading. "There was a difficulty in uploading of bids that had come well within time before 3.30. The uploading is still going on. Roughly about 400 million bids have been uploaded as of now," said Pradhan, nearly six hours after bidding closed.
Pradhan said there was a mix-up between the custodian and the exchanges and Sebi was investigating so that such glitches did not happen again.
Pradhan also denied that state-owned institutions were asked to bail out the offer after it was undersubscribed. "We have not asked anybody. The decision to invest is purely theirs." But, it is obvious Life Insurance Corporation (LIC) saved the day for the government.
The exchanges in a joint statement clarified late in the night that “while the buy orders at both exchanges reflected a demand of 292 million shares around the market close, there were certain buy orders which were not immediately confirmed or were erroneously rejected by custodians due to a mismatch at the custodian end, even though, the orders were funded”.
“These orders were not reflected in the demand of 292 million shares. After rectification of these errors, the final demand was for 420 million shares. Monies and orders received after normal market close have not been considered by the exchanges in the offer for sale,” the statement added.
LIC is set to emerge as the largest investor with bids of around 400 million shares in the offer by the government as demand from foreign institutional investors (FIIs) fell short of expectations. This, however, could not be independently verified. State Bank of India had said it would participate in the auction. Oil dollars from the sovereign funds of West Asian kingdoms such as Kuwait and Abu Dhabi also picked up a considerable number of shares.
According to auction rules, confirmation by the custodians of institutions about the availability of cash to support bids is essential for the bids to be accepted. The cash collateral of the custodians will be directly adjusted upfront on an online real-time basis without adjusting the bidding member’s cash collateral. "For this purpose, the bid entry screen would enable the member to give up bids to custodians at the time of bidding. However, such bids will be treated as incomplete bids and will be given temporary bids till confirmation by the custodians. Once these bids are accepted by custodians, the bids will be treated as confirmed bids," auction rules laid out on BSE website said.
These processes seem to have collapsed when a huge amount of bids came in during the last 10 minutes of the auction. According to rules, "If the online given-up bids are either rejected by the custodians or not confirmed by the custodians till the end of the bid session on T day (by 3:30 pm), then such bids will be treated as cancelled and will accordingly lapse." Following this rule, the exchanges treated huge amounts of bids as lapsed and announced that only 292.2 million shares were bid for. However, the government seemed to have prevailed and ensured all bids were accounted for, said officials.
People who participated in the auction said there was some confusion in the last half an hour as the exchanges did not display the "indicative price". According to the auction procedure prescribed by Sebi, the volume-weighted average price of all the bids has to be displayed "only in the last half hour of the bidding period". However, treasury officials said this price was not declared by the exchange, causing confusion among investors.
Investors were waiting to find out the indicative price so that they could put their final bids at prices that could fetch them the desired quantity, according to a treasury official of a public sector bank. Since the auction was on a price-priority basis, a bid at a lower price could have limited the chances of allotment. However, investors were also reluctant to put large bids without knowing the demand as the floor price was substantially higher than expected.
"The government offered a very competitive price, which was better than the market price," said a senior ONGC executive. On whether such a process should be followed for other companies, he said the auctioning route was an easy process and offered an opportunity for institutional investors to buy in bulk. Individual retail investors are usually cautious and the FPO route takes longer.
"Since this is the first of its kind issue, there could have been technical glitches and understanding issues,” said a banker who was not involved in the issue. "Half-hearted attempts by merchant bankers and greed of the government in fixing the floor price for the issue resulted in a tepid response to the issue," said independent equity advisor S P Tulsian, who tracks oil and gas companies closely. Tulsian is of the view that a floor price of around Rs 270 would have fetched a better response and increased investor participation in the issue.
