Despite the political crisis and pressure on the rupee, lead bankers Goldman Sachs, HSBC and Merrill Lynch, reported impressive and surprising levels of interest in the roughly $375m deal.
One banker said: "We were fully expecting the squall to hit us at some point, yet hardly any investor in the world has said no. With US roadshows now over, we have generated sizeable orders and a strong momentum which will see the issue through to completion next Wednesday."
Although the company's share price is far below the government's original price target of Rp240 to Rp250, it has rebounded from a Rp218 low at the end of last week to hit Rp226 yesterday (Thursday).
The government is said to be sticking to a pragmatic policy of pricing the 60m share deal in line with the secondary market, and final pricing will be set on December 3 at a 0% to 5% premium to either spot or a closing average.
The offering involves the government selling down 40m shares and the company raising new funds via the sale of 20m new shares, with the addition of a 10m share greenshoe.
Analysts commented that the stock is a must buy, and applauded the company for cutting its offering of new shares from original plans to sell 60m shares.
"The downsizing was particularly good news since the company continues to generate a lot of cash which far exceeds its capex plans to install 600,000 lines each year," said one analyst.
MTNL has a virtually unassailable market position in Delhi and Bombay, and the company is scheduled to finally clear its notorious waiting list for new lines by March 1998 - although analysts said that the backlog tends to creep up again during monsoon season.
"On virtually any evaluation the MTNL story is compelling," said one Bombay-based analyst. "It has a firm value to EBITDA of six times, which is incredibly cheap even in comparison to the depressed trading levels of some of its equivalent operators in Asia. On a firm value by line, it is also trading at a discount of up to 50% against comparable stocks."
The political difficulties of the 14-party strong United Front government and the pressure on the rupee, which fell to an all-time low against the dollar this week, were downplayed both in India and elsewhere.
Despite the fact that the Congress Party has boxed itself into a corner over its demand that the DMK (Dravida Munnetra Kazhagam) party be thrown out of the coalition following the publication of the Jain report on the assassination of prime minister Rajiv Gandhi last week, many believe that a compromise can be brokered.
"The parties are aware of the fact that they would be shooting themselves in the foot if they precipitated new elections," said one banker. "And even if the government did fall, there is no doubt that a coalition government would be as keen to see the issue completed."
Bankers were similarly unmoved by reports this week that FII funds have registered their first-ever outflow since the Indian market was opened up in 1993.
The Securities & Exchange Board of India reported on Tuesday that net portfolio investment by FII's fell by $65.7m from November 1 to November 21.
Local bankers said that the outflows reflected redemption pressures across Asia as a whole and remain relatively small in comparison to those in other countries in the region.