EGoM sets floor price for ONGC auction this fiscal

Written by fe Bureau | New Delhi | Updated: Feb 29 2012, 07:44am hrs
An empowered group of ministers (EGoM) led by finance minister Pranab Mukherjee on Tuesday decided to go ahead with the auction of a 5% stake in state-owned hydrocarbon explorer Oil and Natural Gas Corporation (ONGC) before the end of this financial year.

Petroleum minister S Jaipal Reddy told reporters after the EGoM meeting that the government has decided on the floor price for the proposed auction but declined to elaborate. We have decided the floor price, but we will have to wait until we inform the stock exchanges. The notice to exchanges will be sent tonight, Reddy said.

The stake sale is expected to fetch some R12,000 crore. Institutional investors from abroad primarily from West Asia are believed to have assured the government that they would take part in the auction.

The government has resorted to the auction route, under the market regulator's recent guidelines, given the downbeat sentiment in the primary market. However, this could be a dampener for retail investors.

Reddy further said that the auction will happen in a couple of days. The idea is to conclude the entire process in a day.

The ONGC scrip ended Tuesday R2.85 up at R283.55 on the BSE. The EGoM decision was announced after market hours.

After the auction, the governments holding in the energy major will come down to 69.14% from 74.14% now. The proposed disinvestment in the company was deferred many times because of market volatility and the high global crude oil prices, which necessitated ONGC to heavily subsidise the retail price of fuel in a government-controlled market. ONGC is the largest contributor of oil subsidy among the upstream firms, which also include Gail India and Oil India.

The cash-strapped government is keen to conclude the auction this financial year itself and limit the fiscal deficit that is widely expected to go beyond the targeted 4.6% of GDP due to the high subsidy payout and lower-than-expected tax and disinvestment receipts.

The Securities and Exchange Board of India recently brought out norms for share auctions through the stock exchange window. As per the capital market regulator's norms, promoters can offload a stake by way of auction through a separate window on the BSE and the National Stock Exchange. The auction process has to be completed within a day.

Due to weak market conditions, the government could so far make very little progress on its disinvestment programme, falling way short of the Rs 40,000-crore target. It has so far been able to raise only Rs 1,145 crore from disinvestment in Power Finance Corporation (PFC). Last year, the government had raised Rs 22,144 crore from share sales in SJVNL, Engineers India, Coal India, Power Grid Corporation of India, MOIL and Shipping Corporation of India.