(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By Jeff Glekin
MUMBAI Feb 29 (Reuters Breakingviews) - The Indian
government plans to raise $2.5 billion by selling a 5 percent
stake in Oil and Natural Gas Corp (ONGC). If the sale,
the first to use a newly approved auction method, is a success
it could help revive Delhi's much-needed privatisation
programme. Questions remain about retail participation and
whether New Delhi is genuinely convinced by the merits of state
sell-offs. But the disposal of shares in the state-controlled
oil and gas company by auction is a new departure that promises
to be effective and efficient.
In part, the ONGC sale reflects the government's desperate
need to raise cash before the budget, due on March 16. It is
also a sign that equity market conditions, despite a slowing
economy, are good enough to merit a sale of the family silver.
The government pulled out of a planned public offer in September
last year amid weak equity markets.
The auction is likely to attract institutions which are
hungry for investment opportunities. True, a fixed-price
offering might have been pitched at a discount, but the more
market-sensitive auction method of price discovery should
increase confidence in the valuation. Using this method, the
deal can also be done quickly. And if the government can take
advantage of market opportunities as they arise, there is
greater hope that the state will further loosen its grip on key
Retail participation is another bone of contention.
Individual investors will find it harder to get involved in an
auction. That's a shame, since one of the primary objectives of
India's disinvestment programme was to deepen and broaden the
capital market by bring in more retail investors.
India has never quite embraced the idea of privatisation,
preferring to call it disinvestment. Last year's budget set a $9
billion target for disinvestment by the end of March and so far
only $250 million has been raised. New Delhi has also vowed to
keep government stakes in any state-controlled firms above 50
percent. Yet real benefits come courtesy of the productivity
gains that tend to follow increased private ownership. The
auction tack is only one part of the equation. But it is one
that bodes well for Indian privatisations.
-- New Delhi is set to raise at least $2.5 billion by selling
a 5 percent stake in Oil and Natural Gas Corp (ONGC) on March 1.
The long-delayed ONGC sale, set to be the biggest equity
offering in India this year, will be done via an auction on the
stock exchange, the first to use this newly approved sales
-- Shares in ONGC, the country's largest oil and gas
producer and second-largest listed firm in India by market
value, rose as much as 4.8 percent on Feb. 29, outpacing the
wider market, amid expectations that the offer would meet strong
-- The floor price for the company's share auction has been
set at 290 rupees, the company said in a notice to stock
exchanges, slightly higher than its closing price of 283.40
rupees on Feb. 28.
-- The government had earlier planned to sell ONGC shares
through a public offer but that plan was scrapped last October
after a tepid response from investors amid weak equity markets.
-- Reuters: India rekindles privatisation plan with $2.5bln
ONGC share sale
-- For previous columns by the author, Reuters customers can
(Editing by Robert Cole and David Evans)