Indian government officials are doing cartwheels through the Lok Sabha after raking in Rs106 billion ($2.3 billion) from the country's largest ever equity offer. The sale of a 10% stake in Oil & Natural Gas Corporation has, in a single stroke, raised more money than the entire history of India's privatization effort.
In the run-up to elections the government is hoping this prodigious cash generation will demonstrate it is fit to govern for another term. It is, after all, the first government to ever meet its privatization revenue target. The proceeds will cut the fiscal deficit from 5.6% last year to 4.8% in the year ending March 31, just days before the election.
However, the Indian electorate may not be so easily impressed. Although retail investors - the ordinary folk who decide elections - enjoyed a 5% discount compared to other investors they hardly figured in the deal, which was marketed at an aggressive range of Rs680-750 and after eight days of book-building priced right at the top of that band, representing a tight 5% discount to Friday's closing price of Rs801.
Indeed, the overwhelming bulk of demand came from offshore accounts, pushing the over-subscription to almost six times at the discovered price of Rs750. Foreign institutional investors picked up a whopping Rs82 billion worth of the 142.6 million shares on offer, while Indian financial institutions, mutual funds and insurance companies bought a further Rs12.3 billion.
All in, over 300 qualified institutional buyers took 88.2% of the entire deal and were over-subscribed almost 13 times. High-net worth individuals bought 7.2%, retail 2.5%, shareholders 1.8% and employees 0.3%.
The total demand for the deal, at the marketed price, reached an unprecedented $17.5 billion. Bankers at JM Morgan Stanley, DSP Merrill Lynch and Kotak Mahindra Securities, the bookrunners, are patting themselves on the back after getting the deal away so successfully despite some volatility - India's bull-run on the stock market in 2003 prompted some profit-taking and as the deal was pricing bombs were exploding in Madrid.
With all that, and after Gail's $357 million offer the week before, it was by no means certain that ONGC's sale would be as well received as it was. "It helped in setting the momentum, but it also sucked out a lot of money," says a banker involved in the deal. But in the end the momentum proved more important.
The sale reduces the government's stake from 84% to 74%, which underlines the vast size of this company - the sale of a 10% stake represents the country's biggest equity offer by far. Getting such a big deal away was the biggest challenge for the bankers but, according to one, the book-building process was made easy by the company's strong balance sheet, the high quality of its asset base and its aggressive capital expenditure plans.
Also, the free float of ONGC had been so limited - with Indian Oil Corporation and Gail holding 4% each - that the release of 10% offered a golden opportunity to gain exposure to one of Asia's top oil and gas players.