Despite ONGC blip, Sebi may not tweak share auction route norms

Auction may still be preferred over FPO for divestment process

The Securities and Exchange Board of India (Sebi) is not planning to make any changes to the recently-introduced offer for sale (OFS) or the auction route. There was a perception it may tweak norms after the bumpy share auction of Oil and Natural Gas Corporation (ONGC) earlier this month.

“We plan to continue with the existing guidelines,” said a senior Sebi official, when asked if the regulator would review rules after the ONGC auction. The state-owned firm was the first to use the OFS route, a separate window introduced by Sebi in February to facilitate promoters to offload holdings in listed companies.

On March 1, the government had auctioned five per cent stake in ONGC, raising Rs 12,767 crore, or 98.3 per cent of the amount it desired. The auction, however, was marred by technical glitches and managed to get through only after the Life Insurance Corporation (LIC), another state-owned firm, picked up 95 per cent of the shares on offer.

According to regulatory and stock exchange officials, there is no flaw within the Sebi guidelines and the problems occurred largely due to the execution.

To make matters worse for investors, the stock exchanges failed to provide information on the indicative price, something they are supposed to do at specific intervals, according to OFS guidelines.

The floor price indicated by ONGC was higher than the market price on the day of auction. This led to some investors bidding at below the floor price, thereby getting rejected by the system.

Wipro, the only other company to have tapped the auction route so far, managed to mop-up just half its target. However, the auction went off smoothly. Experts attribute the lukewarm response to ONGC and Wipro stake sales to aggressive pricing.

Auction remains the preferred route
Despite the unpleasant experience of the ONGC share auction, the Department of Disinvestment (DoD) may still prefer this route for the coming financial year.

According to a senior DoD official, the government would use the auction route, instead of the traditional follow-on public offering (FPO) for companies like SAIL, BHEL and Oil India, which have been identified as disinvestment candidates for 2012-13.

“In the past, whenever we have announced FPO plans, share prices have tended to correct. Also, the market expects FPO pricing to have a discount of at least five per cent to the prevailing market price,” said a senior official.

The official termed the OFS route as more time-saving and cost-efficient but did not completely rule out the use of the FPO route.

“The share auction will be the preferred route, but we will take a call on a case-by-case basis,” he said.