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IPO success to boost Govt's divestment programme

The overwhelming response to the IPOs is also likely to bring in funds to the deficit-prone Govt.

business Updated: Mar 12, 2004 15:52 IST

The massive investor response to Government's public offer to lower its stake in half a dozen state-run firms is likely to bolster the privatisation programme, say analysts.

Experts say the overwhelming response to initial public offerings (IPOs) of some of the blue-chip public sector firms ahead of the elections is also likely to bring in much-needed funds to the deficit-prone Government.

In the last three weeks, the Government offered most of its shares in four state-owned companies -- Indian Petrochemical Corp Ltd. (IPCL), Dredging Corp, Computer Maintenance Corp (CMC) and oil retailer IBP.

In addition, it also put on the block 10 per cent of its equity in profit-making energy giants Oil and Natural Gas Corporation (ONGC) and Gas Authority of India Ltd (GAIL).

"There was some anxiety in the market ahead of the launch of public issues by state-run companies. It was being seen as a major test for the Government sell-off drive," saidEscorts Mutual Fund vice president KK Mittal.

"The kind of response all the offerings have received has not only come as a major boost for the privatisation programme but also enhanced the image of the Indian capital market globally," Mittal told IANS.

"As a result of the outstanding performance of public sector IPOs, the new government that takes power after the elections will be forced to consider the public offer route for privatisation more seriously."

Elections are to be held in India in April-May.

The sale of Government equity in five state-run companies has already raised a whopping Rs 37 billion ($805 million).

And the auction to sell 10 per cent through the public offer route in ONGC, the country's largest company by market capitalisation, is likely to rake in Rs 110 billion ($2.5 billion), making it the country's biggest-ever public offering.

The Government plans to raise a total of Rs 150 billion ($3.3 billion) through the connective public offerings to meet its budgetary target of privatisation proceeds and rein in the spiralling fiscal deficit to below five per cent.

In the budget of 2003-04, the Government had set a target of raising Rs132 billion ($2.91 billion) in the current fiscal year by selling its shares in blue-chip public sector units.

"I think we are right on track to achieve the privatisation target in the current fiscal year. It is a big positive for the whole country," saidConfederation of Indian Industry's (CII) director general-designate N Srinivasan.

"The way the whole public offerings process was handled and the kind of response that the exercise generated not only in India but also overseas clearly shows that the privatisation programme has finally come of age," he added.

The bidding process for five of the six offerings has already closed after they were all oversubscribed.

Investors bid for 11 times the number of shares on offer for CMC, Dredging Corp was oversubscribed 6.5 times, Indian Petrochemicals nearly five times, IBP more than twice, and blue-chip GAIL eight times.

The ONGC issue, which closes on Saturday, has already been oversubscribed more than six times. The offering was fully subscribed in just 11 minutes of its opening on March 5.

"The sale of Government equity in these firms was based on the idea of distributing public wealth among the public itself. I think this will have an impact on future privatisation cases as well," said Srinivasan.

Disinvestment Minister Arun Shourie has, however, said that both strategic sales and public offer routes for selling government equity in state-owned companies can co-exist.

"The success of all the issues floated by public sector firms has clearly shown the depth of the Indian capital market," said senior analyst with New Delhi-based Prime Database, Sanjeev Khandelwal.

"While strategic sale versus public offering is a larger policy issue, one thing that has really become clear is that the capital market offers a very attractive route for the government to raise funds," he added.

First Published: Mar 12, 2004 15:24 IST