Mismanaged bids causes ONGC auction fiasco

Moneylife Digital Team 01 March 2012

Complete mismanagement of the bidding process by the two stock exchanges is being blamed by market intermediaries for the disinvestment auction fiasco, where subscription had to be managed in a hurry towards the end of trading

The auction for sale of the government’s 5% stake in ONGC on Thursday received bids only for 68.3% or Rs8,500 crore of the total size of Rs12,000 crore. According to TV channels, Life Insurance Corporation of India (LIC) saved the day for the government by subscribing to over 25% of the 42.77 crore shares. Long after the market closed, both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) said that they were counting orders. However, market intermediaries blamed the bourses for the mismanagement.

According to market sources, the notice of the ONGC disinvestment was posted by the exchanges only on 28th February. Brokers were asked to deposit 100% of the order value in cash at the order level for every buy order bid. Bidding started at11am today. In addition, the necessary software had to be installed on the terminals and the mock session was conducted only on yesterday. Since the market intermediaries were not in a position to bring in ready cash and in the absence of proper training (just one mock trading session), they found it difficult to place bids on the new system.

The long-delayed sale of the country’s largest oil and gas explorer, set to rank among India’s five biggest equity offerings and the largest so far this year, was conducted via an auction on the stock exchanges, in a test case for a newly approved method. The government had proposed to sell about 42.77 crore shares through the auction at a floor price of Rs290 a piece.

At the end of the one-day auction, the auction got total bids for 29.22 crore shares, including 19.92 crore on the NSE and about 9.3 crore on the BSE platform, exchange official said.

In the event of the total number of orders received at or above the floor price being less than the number of shares being offered for sale, the government would have the right to either conclude the sale to the extent of subscription or cancel the sale. The shares would be allocated on ‘price-priority’ basis, meaning the bidders at highest price would be allotted shares.

The government owns 74.14% stake in the oil company and proposed to sell 5% or 42.77 crore shares. The bids were mostly in the price range of Rs290-Rs293 per share for the auction, which commenced at 0915 hours and closed at 1530 hours today.

Earlier, the bidding began on a weak note and only about 37,500 shares were bid for in the first hour. Till 1500 hours also, total bids had come in for only about 1.43 crore shares, but the momentum picked up in the last 30 minutes.

Both NSE and BSE in a joint statement issued late in the night said, “The ONGC offer for sale was completed today using the secondary market mechanism created by NSE and BSE. The final demand was for 42.04 crore shares against an offer of 42.77 crore shares. While the buy orders at both Exchanges reflected a demand of 29.22 crore shares around the market close, there were certain buy orders which were not immediately confirmed or were erroneously rejected by custodians due to a mismatch at the custodian end, even though, the orders were funded. The exchange systems operated normally and smoothly and there were no glitches.”

ONGC ended the day 1.71% down at Rs288.2 while the BSE Sensex closed 169 points down at 17,584.

Comments

User

dayananda kamath k

1 decade ago

again premiume money of lic policyholders is being used by the govt to shore up its finances. there is every possibility that the orders where 1005 margin were not held and rejected are reentered by accomodation. sebi has to do a through enquiry about the entire transaction. as well as cbi has to enquire as to whether govt pressurised the govt institutions to subscribe. irda also should look into how the decisions are taken by lic and why bids are put in last minute for such a huge order of 25% of the issue. and at what price. when they know that it has not subscribed as a prudent institution should have bid for reseve price than at higher price. so it has compromised the interest of policy holders. it amounts to breach of trust.govt with rs.100 crore of capital in lic is missusing lakhs of crore of premiume money of policy holders to re to salvage its finances.

Melvin Joseph

Replied to dayananda kamath k comment 1 decade ago

LIC, working with an acting chairman will do things like this! It is a pity that policy holders money is put into these situations. What way regulator can control this, because they are all afraid of the Finance minister and his powerful team. We are having weak regulators in majority of the financial sectors. LIC with such actions can become next Air India.