India will auction a 5% stake in Oil & Natural Gas Corp. over the next two days for at least 290 rupees per share, or a 2% premium to Tuesday's close, in an effort to kick-start attempts to sell state assets and boost government revenue.
The ONGC share auction, which will be completed in a single day, will help the government narrow its fiscal deficit and bolster plans to set robust non-tax revenue aim for the next fiscal year starting April 1 after weak share markets derailed New Delhi's fund raising plans via stake sale in government owned companies. The ambitious floor price for ONGC share sale, which will help government raise at least 124.05 billion rupees ($2.53 billion), will bring the government closer to its aim to mop up as much as 400 billion rupees from such sales this financial year.
Oil Minister Jaipal Reddy told reporters that the government had decided to auction ONGC shares and had set floor price, which it will inform to the stock exchanges. He declined to give details. A senior finance ministry official, who didn't wish to be named, said that the price had been set at 290 rupees a share.
"Tonight we are sending a notice to stock exchanges," Mr. Reddy said.
The shares of the New Delhi-based company Tuesday closed up 1.02% at 283.55 rupees, while the broader benchmark index was up 1.64%.
The government, which owns 74.14% of ONGC, plans to sell 427.77 million shares, which will trim its holding in the company to 69.14%.
The government aims to narrow the deficit to 3.5% by March 2014, but heavy subsidies to artificially lower food, fertilizer and fuel prices and shield the poor from inflation have cast doubts over the government's ability to stick to its fiscal consolidation plan.
The ONGC stake sale is important to help control the budget deficit, which is widely expected to overshoot the targeted 4.6% of gross domestic product this fiscal year through March by as much as one percentage point.
India had set a target to raise as much as 400 billion rupees in the current financial year through stake sales in state-run companies. However, due to weak markets it has so far raised only 11.5 billion rupees.
Disinvestment Secretary Mohammad Haleem Khan said this month that the target was now almost impossible to achieve.
In the auction method, which was permitted by the capital markets regulator last month, founders of companies can sell part of their share holding via stock exchanges instead of conducting a full public offering, saving on paperwork and time.
In November, the government cancelled plans for a secondary sale of ONGC shares to raise more than $2 billion. It didn't give any reason for the cancellation but local media reported that the government wanted a higher price band than what was suggested by merchant bankers.
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