(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By Jeff Glekin
MUMBAI, March 2 (Reuters Breakingviews) - New initiatives
don't always succeed first time. The Indian government's auction
of 5 percent of Oil and Natural Gas Corp, the energy
group, could have flopped had it not been for last-minute
intervention from state-owned Life Insurance Company of India.
But if Delhi learns the right lessons, the auction route could
yet be an effective way of selling stakes in state-run firms.
So what went wrong? Firstly the floor price looks to have
been off-putting. On Tuesday the government set the price at 290
rupees, a 2.3 percent premium to the day's closing price. But
the price subsequently rose further and then fell back. The
moves weren't huge, but were sufficient to sow seeds of doubt in
the minds of would-be investors. In the United States, auctions
take place outside trading hours. India should consider a
It is an advantage of auctions that they can happen quickly,
but this process appears to have taken place at precipitous
pace. With more time to play with, the government might have
been able to bring in retail investors who, unfortunately, were
left on the sidelines. The broader the potential investor base,
the better the chance of finding buyers -- and the better the
price-discovery mechanism. Besides, financial inclusion is a
laudable aim in itself.
With the Indian economy softening, wider investment market
conditions may not have been as auspicious as was anticipated.
With practice, however, the vendors and their advisers will
become more attuned to these sensitivities, and the pricing
imperatives that follow from them.
In the case of ONGC, the Indian government also skimmed over
important elements of ground work. For one thing, there is
uncertainty about how government policy on oil subsidies will
affect the profitability of the company. For another, private
sector providers of capital cannot be really sure that New Delhi
is committed to privatisation. The state needs the money to ease
deficit burdens, yet still wants to call the shots. That hardly
helps to make a compelling investment case.
Risk-averse politicians and civil servants are not known for
their robust constitutions in the face of a perceived failure.
But the ONGC auction encountered significant difficulties, not
-- The Indian government fell just short of its target in a
chaotic $2.5 billion auction of shares in Oil and Natural Gas
Corp (ONGC). Investors bid for 98 percent of the shares on
offer. State-owned Life Insurance Company of India (LIC) is
reported to have made a revised bid for 120 million shares just
after the markets closed and confusion remains over exactly how
many shares LIC bought.
-- The floor price for the auction had been set at 290
rupees late on Feb 28, a 2.3 percent premium to the day's
-- Reuters: ONGC auction debacle batters India divestment
-- For previous columns by the author, Reuters customers can
(Editing by Robert Cole and David Evans)