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Pricing was the biggest problem; Execution was confusing too
When Oil and Natural Gas Corporation (ONGC) announced it was preparing to sell $2.6 billion-worth of stock to institutional investors, few expected such a simple deal to go so spectacularly wrong.
This was, after all, a relatively small sale of 427.77 million shares by probably India's most respected energy firm.
Yet everything that could possibly go wrong did so. The first mistake, say bankers involved in the sale, was pricing. ONGC's six advisers - Citi, Bank of America, HSBC, JPMorgan Chase, JM Financial and Nomura - advocated caution. This was a deal that had to be done right, they said.
It involved an unusual - if not complex - deal: the first ever offer for sale (OFS) launched in India, essentially a block trade allowing company owner-promoters to auction batches of shares in a listed vehicle to institutional investors.
Moreover, it was a litmus test for a stalled privatization agenda, the first in a series of disinvestments by leading state firms, as New Delhi seeks to trim its widening fiscal deficit, tipped to hit 5.9% of GDP this year.
A nonsense price
Bankers recommended a price of Rs260 ($5.15). Nonsense, the government - the company's largest shareholder - shot back. ONGC was a blue-chip company and should be treated by the markets as such. A floor price of Rs290 was rubber-stamped by Haleem Khan, head of the government's department of disinvestment, 2.2% above...