Markets slap govt: 10 takeouts on ONGC's flop auction

The government’s first foray into auction-based public sector disinvestment has been underwhelming. Reports show that the government managed to sell just 68 percent of the ONGC shares on offer through the stock exchanges auction route on Thursday.

At close of trading, the National Stock Exchange and Bombay Stock Exchange said around 29.22 crore of the 42.77 crore shares of ONGC offered for sale had been bid for. Efforts were on to see if more could be pushed through the back-door - but that will only dent the credibility of the government further.

So what does this mean?

[caption id=“attachment_230891” align=“alignleft” width=“380” caption=“If the government persists with its disinvestment agenda this year, it will have to sell shares at a discount to market price. Reuters”]  [/caption]

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One, it is a flop, a slap in the face of the government. When only two out of three shares on offer get taken up, it is a vote of no-confidence in the company, or the promoter, or both.

Two, it could also counted as a super-flop. If a significant chunk of the money came from public sector companies like LIC or SBI, it says much for what real investors who can’t be arm-twisted think about investing in government-owned ONGC.

Three, the poor response is a negative comment on the government’s energy policy. This policy involves subsidising oil marketing companies at ONGC’s cost. This is corporate misgovernance of the worst kind.

Four, it is a thumbs-down from the rest of the public sector as well. If most cash-rich public sector companies are unwilling to invest in ONGC, it means government has lost the faith in its own companies. ONGC sources washed their hands of their issue saying it was done by the department of disinvestment (DoD). ONGC was not enthusiastic about its own issue.

Five, the market will view efforts to fleece other public sector companies like Coal India as a negative. The government should thus not be forcing them to buy back shares or create cross-holdings at this juncture.

Six, if the government persists with its disinvestment agenda this year, it will have to sell shares at a discount to market price. The ONGC share is now quoting below the auction reserve price of Rs 290.

Seven, the government should cut its losses and look ahead. The market has anyway discounted the fiscal deficit figure for 2011-12. So a bit more share sale won’t do much to make the deficit look prettier. Shifting the disinvestment plan to next year is a better and more credible option.

_Eight, g_iven the kind of damaged goods it was hawking, ONGC would have sold better if the reserve price was below the market price. This way there was something on the table for investors. The government has thus shown its has only its own interests in mind - not that of investors.

Nine, by pushing ahead with a flawed disinvestment plan, the government has not only damaged its budget numbers, but business sentiment in general.The markets will see the ONGC failure as a bear signal. The government has to restore business confidence - and behaving like a desperate seller of household silver does not help.

Ten, Sebi has been discredited, too. The market regulator bent over backwards to help the government’s disinvestment plans when its main job is to protect investors. By aiding and abetting the government’s efforts to raise money on the quick, it has acted contrary to its basic charter.

Sad.