Govt googly stumps ONGC short-sellers

Last-minute issue deferment raises expectations of a higher price band.

The government’s decision to postpone the follow-on public issue of ONGC just four days ahead of its planned opening on September 20 has stumped short-sellers in the stock market.

Most traders, who thought they could sell ONGC shares in the futures segment at the current market price and buy them back at a discounted rate during its follow-on public issue (FPO), have now been caught on the wrong foot as analysts say the sale has been deferred because of a pricing disagreement with the planned offering’s managers. This means the FPO would be priced at a higher level against the market’s original expectation.

Market players had anticipated the FPO to be priced between Rs 225 and Rs 250 for retail investors, who are offered a five per cent discount. Some brokers had already sold ONGC shares in the futures segment at around Rs 260 and were looking to corner the retail category shares at a discounted price.

In the grey market, stock brokers in Mumbai, Gujarat and Delhi were paying Rs 3,700 to Rs 4,500 upfront to retail investors for each application on their behalf. The strategy looked good as retail investors did not want to take any risk, given the market scenario.

Investors on Friday cheered the deferment on expectations the government would set a higher price band for share sale. ONGC shares gained as much as 7.7 per cent and closed up 5.6 per cent at Rs 274.70, widely outperforming the BSE Sensitive Index, which rose 0.3 per cent.

Sources said bankers and disinvestment department officials were not enthusiastic about the ONGC market price as it did not move ‘freely’ despite heavy buying from insurance companies and banks.

The government this time was firm on better pricing, as the initial public offer of Coal India, which was widely subscribed, was thought to be hugely undervalued. The share price of the coal major rose over 60 per cent within just 10 months of listing and foreign funds were the largest gainers from the issue.

"It is a signal from the government to traders against short-selling shares of companies under divestment," said Kishor Ostwal, managing director of CNI Global Research.

Ostwal said the disinvestment department may not accept a lower price for upcoming PSU issues. "There are other tools the government is using to raise money, so there will be no desperation to accept any price for equity divestment. Already, the Rs 6,000 crore tax-free bond issue of Power Finance Corporation is being planned in a couple of weeks," Ostwal said.

ONGC did not give an official reason for the deferment and did not give revised dates as well, saying it would "evaluate its decision in relation to the offer in due course."