The Gas Authority of India's Rs16.2 billion ($357 million) public offer will have the brief honour of being India's largest equity offer in the last six years. By the end of this week, however, its brief moment of glory looks set to be blown away by India's mother of all privatizations from Oil and Natural Gas Corporation.
More important than records, Gail's offering was a tremendous success and an important boost to the government in the run-up to elections. For the first time in post-liberalization India, the government is going to meet its revenue target for state sales. And it has done so without throwing the shares away to investors at steep discounts.
The floor price of the offer was Rs185 and it priced in the end at Rs195, just a rupee below the market price. However, retail investors, who made up 25% of the allocation, enjoyed discounted shares at Rs185.25. The government says it is keen to encourage widespread participation in India's thriving equity market, though it does no harm politically to hand out instant profits to the masses. The high-net worth and institutional investors comprised 25% and 50% of the allocation respectively and paid the discovered price.
Thanks to the discount, retail investor demand stayed constant. The retail allocation was two-times subscribed at both the floor price and the discovered price. The institutional book was covered 13 times at the floor price and 10.81 times at pricing.
High-net worth investors, who are classed as non-institutional buyers subscribing for more than Rs50,000, covered the book three times at Rs185 and 2.2 times at Rs195. Overall, the book was over-subscribed seven times, which sets a new record for demand.
The success of the deal is a feather in the cap for the advisers, HSBC and ICICI Securities, and the government after the disinvestment programme seemed to have stalled last September when the supreme court ruled against the strategic sales of Hindustan Petrochemical and Bharat Petrochemical, saying an act of parliament would be needed to privatize them as they had been nationalized by an act of parliament.
However, a 10% stake sale is an easier political objective than the strategic sales, which have proven highly controversial. Conversely, stake sales are the low-hanging fruit - they rake in plenty of cash for the government and allow it to at least appear to be addressing its deficit problems while also allowing the average family to take part and benefit from the spoils. Whether or not it is an election-winning strategy is less obvious.
Gail has also announced that it plans to place a Rs3 billion bond deal, which is opening on Thursday. The 10-year notes have an indicative band of Rs5.85-6.25 and a greenshoe option of another Rs3 billion. The deal is due to close on March 16 and is being arranged by SBI Capital Markets, ICICI and Kotak Mahindra Capital.
