With less than two months remaining in the current financial year and the divestment target of R40,000 crore far from achieved, the government is looking at the auction method to partly divest its stake in ONGC. A panel of ministers will meet later this month to finalise the stake sale.

A senior oil ministry official said on Monday that the government might auction 5% holding in ONGC to bring down its stake from the current 74.14% to 69.14%. The stake sale will comprise around 427.77 million shares.

?Auction is favourable. We can do it quickly. There is less paperwork involved,? said the official. Incidentally, last week disinvestment secretary Mohammad Haleem Khan also said that the government is looking at a possible follow-on offering or an auction to sell 5% stake in ONGC.

On Monday, shares of ONGC gained marginally to close at R283.10.

The government’s plan of raising R40,000 crore through divestment in the current financial year has largely remained on paper as until December the equity market outlook remained quite bleak. In FY12, the government has managed to raise only R4,578 crore through its follow-on public offering (FPO) in Power Finance Corporation.

Meanwhile, the recent past has seen the capital market regulator relaxing the norms related to stake sale, making the framework more conducive for the government’s divestment programme. The Securities and Exchange Board of India (Sebi) has introduced the concept of Institutional Placement Programme (IPP) and also allowed an offer for sale through the stock exchange mechanism.

In 2010, the government used the French auction mechanism to divest its stake in NTPC and Rural Electrification Corporation or REC. The process came under heavy criticism and the government opted for the normal book-building mechanism for all remaining divestment.

According to market players, the recently-introduced IPP mechanism or offer for sale through stock exchanges could be explored by various listed entities, including government-owned companies, for diluting promoter stakes.

The IPP is also a form of auction system where the issuer can announce an indicative floor price or even a price band one day prior to the opening of the offer. The offer has to be made only to institutional entities and would include a reservation of at least 25% for mutual funds and insurance companies.

Indian companies raised R10,497 crore in the first six months of fiscal 2012 by way of initial public offerings (IPOs), follow-on public offerings (FPOs) and qualified institutional placements (QIPs) compared with R28,592 crore raised in the same period last year, according to data compiled by Prime Database.