GAIL, ONGC offloading plans to buoy IPOs

The government's proposed decision to offload 10 per cent stake in GAIL India and Oil and Natural Gas Corporation (ONGC) will not derail the initial public offering (IPO) plans of private companies.

The government's stake sale is expected only to add to the quality of paper coming into the markets in 2004, and thus, will attract even the fence-sitting retail investors into the fray, merchant bankers said.

Ajay Sondhi, vice-chairman and managing director, Kotak Mahindra Capital, said: "I think it is a very positive move as there is a big demand for good quality paper, which is reflected in the general bouyancy for these companies' scrips in the market."

Markets sources added that liquidity is not an issue either with institutional or retail investors, and the only issue is the quality of paper in this market.

For instance, sources said, the recent 40 million share Indraprastha Gas IPO was oversubscribed more than 35 times at Rs 48 per share, the upper end of the indicative price band.

"There is a vast segment of retail investors who burnt their fingers in the last IPO boom and have still not returned to the markets fearing another debacle. But as the Maruti IPO showed, these investors will happily participate in an issue where the company's credentials are secure," an investment banker pitching for the government's floats said.

Merchant bankers added a share float from a government company at this time will add to "the available share pool in the secondary markets, thus imparting added liquidity to the Indian markets."

Rajendar Naik, managing director, Centrum Finance, echoed similar views and added, "From the retail perspective, I think is a welcome move, especially from earlier divestment experience of Maruti Udyog and Indrapastha Gas."

Sources added that while the domestic markets can easily absorb twin issues of this size, a simultaneous global float (as is being proposed by merchant bankers pitching for these accounts) will add to the attraction for domestic investors.

"A simultaneous global listing will fetch these firms a better price and domestic investors too will be willing to pay up the prices that are being talked of," a merchant banker said.