Much has been written and said about the bungled ONGC divestment. About the fact that LIC was forced to bail out the issue. About how the pricing left nothing on the table for investors. About how regulation was twisted to enable government divestment without the traditional public issue process. About how they had to extend the closing deadline.
While bungling appears to be an enduring criticism of today’s government, the fiasco was a result of arrogance and a disconnect with reality.
Why should anybody buy shares of ONGC:
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when they are subsidising fuels for you and me, and therefore cannot earn optimal returns?
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when the management team has no real say in strategic decisions?
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when they have no freedom in pricing or investment?
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when politicians are likely to change rules frequently, ensuring uncertainty for investors?
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when they price their issue at a premium to market price?
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when every single PSU is treated as the private fiefdom of some politician or another?
I could go on.
But the real arrogance is they still think PSUs are “blue-chips”, that us dumb investors will lap up at any price. The market is hungry for quality, well-priced issues, as MC has demonstrated. Equally, investors don’t like junk – and that is the clear message for the government.
Poor LIC ended up paying for part of the government deficit (as other state-run companies will). Leaving aside the security of my insurance policy, money that should have gone into long-term infrastructure has been used to buy over-priced ONGC shares.
Sadly, until the Indian government gets out of running these companies, their value will only decline. If divestment or privatisation meant going below 50% and handing over management, then yes, these companies are worth a lot. And I’m sure investors will bite. But as long as the current promoter (the government) continues to siphon off money for its own ends, why should investors trust them?