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India Raises $2.5 Billion From ONGC Sale in ‘Face Saver’ Auction

An Oil & Natural Gas Corp. offshore platform burns off excess gas. Source: Oil & Natural Gas Corp. via Bloomberg
An Oil & Natural Gas Corp. offshore platform burns off excess gas. Source: Oil & Natural Gas Corp. via Bloomberg

March 2 (Bloomberg) -- India raised at least 122 billion rupees ($2.5 billion) from the sale of a stake in Oil & Natural Gas Corp. in the first auction of a state-run company’s shares to bolster government finances.

Bids were placed for 98 percent of the shares on sale, according to a joint statement from BSE Ltd. and the National Stock Exchange of India. The government planned to raise 124 billion rupees by selling 427.77 million ONGC shares, or a 5 percent stake, at a minimum price of 290 rupees each.

A delay in disclosing the final results spurred speculation the auction had failed after the issue was priced at a premium of 2.3 percent to the Feb. 28 close. Citigroup Inc. sold its entire stake in Housing Development Finance Corp. for $1.9 billion on Feb. 24, offering the shares at a 6.2 percent discount.

“The way the auction was going, it looked like it wasn’t going to be fully subscribed,” said Deven Choksey, managing director at Mumbai-based brokerage K.R. Choksey Shares & Securities Pvt. “Somehow, it turned otherwise. This is a face saver for the government.”

The government raised 127.7 billion rupees from the sale, Bloomberg UTV television network said, citing Finance Minister Pranab Mukherjee.

The final results were declared almost seven hours after the auction closed at 3:30 p.m. local time. A “technical glitch” at the stock exchanges rejected bids that were made before the close, Sidhartha Pradhan, additional secretary at the disinvestment department, told reporters in New Delhi yesterday. India’s market regulator is investigating the issue, he said.

No Glitches

Systems operated normally and smoothly and there were no glitches, the exchanges said in the statement. More than 95 percent of the bids were placed in the final 10 minutes of the auction, according to stock exchange data.

ONGC fell 1.7 percent to 288.20 rupees in Mumbai yesterday. The stock has climbed 12 percent this year. An index tracking shares of state-run companies was down 0.7 percent and the Sensex dropped 1 percent.

The Securities and Exchange Board of India, the market regulator, announced rules for the sale of shares through auctions to institutional investors on Feb. 1.

“The auction route reduces a three-month share sale process to two days,” said Kamlesh Kotak, a Mumbai-based analyst at Asian Markets Securities Pvt. “There’s negligible paperwork, no long road shows and issues can come quickly to the market.”

Index Rally

A 15 percent rally in the benchmark Sensitive Index this year and $7.1 billion of inflows from foreign equity investors into the country versus outflows last year prompted the government to sell the ONGC stake.

The auction is part of Mukherjee’s attempt to bridge a fiscal deficit, which topped the target for the financial year in the 10 months through January. Mukherjee managed to raise only 3 percent of the government’s disinvestment target for the 12 months through March, not including proceeds from the ONGC sale.

ONGC declined 20 percent in 2011 amid concern that its fuel subsidy burden is mounting. The explorer’s discounts on oil sales to state refiners, offered as compensation for selling fuels below cost, tripled to 125.4 billion rupees in the quarter ended Dec. 31, reducing profit by 72 billion rupees.

“The floor price was too expensive considering there isn’t any clarity on ONGC’s subsidy payment,” said Deepak Pareek, a Mumbai-based analyst at Prabhudas Lilladher Pvt. “Oil is rising and investors probably think ONGC’s burden will increase.”

Slow Growth

Citigroup, which managed the HDFC sale, is one of the banks for ONGC, along with JM Financial Services Ltd., Bank of America Corp., HSBC Holdings Plc, Morgan Stanley and Nomura Holdings Inc.

Mukherjee’s plan to cut the budget deficit to a four-year low of 4.6 percent of gross domestic product has been hampered by higher spending and lower revenue collection as growth slows. India’s economy expanded at the slowest pace in more than two years last quarter, the Central Statistical Office said Feb. 29.

The government sold 11.4 billion rupees worth of Power Finance Corp. last May, raising 3 percent of its disinvestment target. Offerings in companies including Bharat Heavy Electricals Ltd., Steel Authority of India Ltd. and Hindustan Copper Ltd. were delayed after the Sensex’s 25 percent decline last year. The government in November scrapped a plan to sell a 5 percent stake in New Delhi-based ONGC in a public offering.

The state raised 152 billion rupees in October 2010 in a Coal India Ltd. initial public offering, the country’s largest.

To contact the reporters on this story: Anto Antony in New Delhi at aantony1@bloomberg.net; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Ruth David in Mumbai at rdavid9@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Amit Prakash at aprakash1@bloomberg.net

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