ONGC auction: What went wrong?

Yesterday, Oil and Natural Gas Corp 's (ONGC) share auction was affected by a system glitch due to large last minute orders.

In an interview to CNBC-TV18, Rashesh Shah, chairman and chief executive officer of Edelweiss Group says, it was the first experiment of its kind.

He also says, the amount was very large- USD 2.5 billion. "Most of the IPOs and FPOs in India are about Rs 4,000-5,000 crore. Anything higher than that usually needs a lot more effort on the part of the brokers and investment bankers to sell and convince people," he adds.

Beside that, he feels investors had little time to prepare themselves for the auction. "People had only 48 hours to arrange the cash. Arranging cash even for institutional investors takes some time," he asserts.

Also, he says, the rupee liquidity is at its worst. "We have not seen this kind of liquidity crunch for a long time," he adds.

ONGC auction: Experts glad it's over, say stock may do well

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Also watch the accompanying videos.

Q: ONGC, are you a little shocked by the series of happenings after 3:30 pm? What's  your key takeaway from the ONGC divestment?

A: Our view has been slightly contrary. It was the first experiment of its kind. It happened only in the last four weeks.

The amount was very large-USD 2.5 billion. Most of the IPOs and FPOs in India are about Rs 4,000-5,000 crore. Anything higher than that usually needs a lot more effort on the part of the brokers and investment bankers to sell and convince people.

Given the Indian market, raising more than Rs 3,000-4,000 crore should have a lot more effort. It was something new and it was a very large amount, USD 2.5 billion.

The fourth aspect is the rupee liquidity is at its worst. We have not seen this kind of liquidity crunch for a long time.

Q: On the future divestment plan, what do you think could be changed around or what could have been done better yesterday to avoid all of the confusion that took place?

A: Four-five things will be considered now. First, from the announcement of the issue to the actual auction date, if there is about a week or eight-ten days then a lot of the brokerage houses and investment banks will get prepared. They will come out with the research notes. They will also talk to investors. So, I think the first is to give some more time. Here people had only 48 hours to arrange the cash. Arranging cash even for institutional investors takes some time. So, I think atleast a gap of a week or slightly more than a week would be very efficient.

Along with that, there should be some kind of an economic incentive for the brokers and the investment banks to go out and sell the story. Third, instead of doing one large lot, breaking it up in smaller amounts would also be easier. For the market, in India, to come up suddenly with Rs 12,000 crore, especially after the MCX IPO, it may not be easy. So, I think smaller amounts, more frequent auctions, some amount of preparation time and economic incentives for the brokers could be good ideas.

Q: Do you think they would be able to do something more before March 31, after this experience?

A: I think smaller amounts in good companies can still go through. ONGC, had it been three tranches of Rs 3,000 or Rs 4,000 crore each over three-four weeks, it would have been easier to get it done. Organising cash in this kind of liquidity crunch, which is going on in India, for a lot of the insurance companies, mutual funds, it may not have been all that easy. So, if they do smaller amounts in the next three-four weeks, any individual auction of Rs 2,000-4,000 crore should be possible in good companies at a reasonable price.