Bloomberg News

India Shuns Advice on ONGC Sale Pricing as State Insurer Buys

March 02, 2012

An Oil & Natural Gas Corp. offshore platform burns off excess gas. Source: Oil & Natural Gas Corp. via Bloomberg

An Oil & Natural Gas Corp. offshore platform burns off excess gas. Source: Oil & Natural Gas Corp. via Bloomberg

India’s government went against the advice of bankers as it prepared to sell a $2.5 billion stake in Oil and Natural Gas Corp. by seeking a price 2.3 percent higher than the energy company’s last close, according to three people familiar with the discussions.

State-owned Life Insurance Corporation of India bought most of the stock at 290 rupees apiece after interest from other buyers failed to materialize, the people said, speaking on condition of anonymity. Advisers including Citigroup Inc. (C) and Morgan Stanley had recommended a price of 260 rupees for the 5 percent stake, auctioned March 1, according to a Feb. 28 presentation by bankers obtained by Bloomberg News.

The above-market price for ONGC, India’s biggest energy explorer, compares with discounted sales of shares in ICICI Bank Ltd. and Housing Development Finance Corp. (HDFC) in the past month. The divestment risks damping investor enthusiasm for future asset sales by India’s government.

“They forget the cardinal rule that something has to be left on the table for the investor and priced the shares aggressively,” said R.K. Gupta, the New Delhi-based managing director of Taurus Asset Management Ltd., which oversees $1 billion. “Calling on the state-run financial institutions should be the last resort.”

Temasek Holdings Pte, Singapore’s state-owned investment company, on Feb. 8 sold 14.7 billion rupees ($297 million) of shares in Indian lender ICICI at a 1.5 percent discount to the previous day’s close. New York-based Citigroup sold its entire stake in HDFC for $1.9 billion on Feb. 24, offering the shares at a 6.2 percent discount.

‘Not High’

“The floor price of 290 rupees is not high at all for a company like ONGC,” Sidhartha Pradhan, additional secretary at the Department of Disinvestment, told reporters in New Delhi March 1. “It was the decision of the panel of ministers to price it at that level.”

The ONGC divestment, part of Prime Minister Manmohan Singh’s push to eliminate a budget deficit, still leaves India short of its 400 billion rupee target for asset sales in the fiscal year through March 31.

The government raised 127.7 billion rupees from the sale, according to a statement yesterday. The shares were sold at a weighted average price of 303.67 rupees apiece, 4.7 percent higher than the floor price.

LIC’s Bid

LIC bid for 400 million of the 427.8 million shares on sale at 290 rupees each through multiple brokers, the Economic Times reported yesterday, citing unidentified people. The government statement didn’t mention the buyers.

A purchase of 400 million ONGC shares at 303.67 rupees apiece would have saddled the buyer with a paper loss of 8.9 billion rupees, based on the stock’s 2.4 percent drop yesterday.

The other banks managing the sale were JM Financial Services Ltd., Bank of America Corp., HSBC Holdings Plc and Nomura Holdings Inc.

Pradhan didn’t identify buyers of the ONGC stake and said the government didn’t ask anyone to bid for the shares. Vipin Anand, a spokesman for LIC in Mumbai, didn’t respond to two phone calls to his office and an e-mail seeking comment.

The government plans to sell stakes in companies including Bharat Heavy Electricals Ltd., Hindustan Aeronautics Ltd., Steel Authority of India Ltd. and Hindustan Copper Ltd. Some of those divestments were delayed last year amid a 25 percent decline in the benchmark BSE India Sensitive Index.

In the ONGC transaction, India received bids for 98 percent of the shares on sale, according to a joint statement from the country’s two stock exchanges. More than 95 percent of the bids were placed in the last 10 minutes of the auction, the data showed.

The final results from the exchanges were declared almost seven hours after the auction closed at 3:30 p.m. local time.

To contact the reporters on this story: Anto Antony in New Delhi at aantony1@bloomberg.net; Ruth David in Mumbai at rdavid9@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net


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