Ratings agency Moody's today said the result of the government stake auction in ONGC has tarnished the image of the oil major.
"The result of the ONGC auction highlights how the government's own weak finances and policies tarnish the perceived value of the companies it owns," Moody's said in a statement.
On March 1 the government had auctioned 5% of its stake in ONGC. Although the issue was subscribed 98.3% and fetched the government Rs 12,767 crore, as much as 84% of the shares on the block were bought by state-run LIC.
"Poor private interest in the shares of one of India's largest firms [by market capitalisation and profits] is credit negative for the Indian government," it said.
Moody's said that one of the reasons for investors staying away from the ONGC auction was that the shares were priced higher than the market price. While the shares were trading around Rs 286 a piece, the government fixed the floor price for auction at Rs 290.
"Investors also raised concern that ONGC's profitability could be imperiled by the government's energy subsidy policy and its plans to employ the cash balances of public enterprises to shore up government finances," Moody's said.
It said that the government's plans to use public enterprise cash balances to manage the gap between expenditure and revenue.
"Investors were also concerned that ONGC, which has a large cash balance [Rs 27,400 crore on September 2011], could be induced to pay out higher dividends to the government, its majority owner even after the stake sale. ONGC has already paid out Rs 5300 crore as interim dividend in January," it added.
