The sale of a government stake in India's Oil and Natural Gas Corporation (ONGC) is shaping up to be a key test case for the state's ambitious plan to raise $9bn from privatisations in the year to March 2012. Bankers say that the government wanted to sell the stake back in March 2011, when it would have been the first deal of the programme and probably the easiest to sell.
But the sale was hit by a series of delays, not least down to poor secondary markets, and India has now only managed to close a $1bn sale in shares of Power Finance Corp.
The ONGC sale is now being marketed again, although it is easy to say, in hindsight, that the government should have pushed ahead with the deal earlier in the year purely for pricing reasons. The stock approached an annual high at the end of April, trading at Rp316.89. It is now down 17.62% from this level. But the government had even more reason to hurry: it has an ambitious series of stake sales planned, and not much time to do them.
Three more sales have already been approved by the Ministry of Divestment: Steel Authority of India, Hindustan Copper and Bharat Heavy Electricals. These deals, alongside the ONGC sale, will raise around Rs22.3bn ($4.2bn) for the government before any discount to current prices. That leaves another $4bn to find from stake sales before the government can hit its target.
India will not struggle to find more companies to offer to the market. National Buildings Construction Corporation, Indian Oil Corp, Minerals and Metals Trading Corp and National Aluminium Company are all candidates for divestments.
The ONGC sale will be an important test of whether the government can expect demand for these future sales — a poor reception could be the nail in the coffin for the rest of the programme. But even if it does succeed, the government will in future need to be less sensitive to market movements, speed up its decision-making process and pay up in terms of discount. Failure to do this will see it struggle to get any deals out of the starting blocks.