Turbulent market forces withdrawal of GAIL GDRs

NEW DELHI, November 5: Turbulent conditions in world stock markets has forced the government to withdraw Gas Authority of India Limited's (...

NEW DELHI, November 5: Turbulent conditions in world stock markets has forced the government to withdraw Gas Authority of India Limited’s (GAIL) $700 million Global Depository Receipts (GDR) issue, for the time being. The Core Group on Disinvestment met this morning to consider reports from the global co-ordinators for the issue — that they were unlikely to get a market price above around Rs 120 per share and that it seemed difficult to get enough buyers.

Briefing the media, Finance Secretary Montek Singh Ahluwalia, said this was a temporary situation and GAIL would probably go back once global markets stabilised. Ahluwalia did not wish to speculate on whether this would hit Mahanagar Telephone Nigam Limited’s (MTNL) proposed GDR issue as well — MTNL officials left for the US for their pre-marketing exercise today, though the final pricing of the issue is to be decided only next month. When contacted, Department of Telecommunications (DoT) officials, said they were keeping their fingers crossed.

Ahluwalia said that the global managers for the issue assured them that investors were keen on the GAIL scrip because of its fundamental strengths, but that it just didn’t make sense to divest at a low price as at present.Belying Ahluwalia’s optimism, another senior ministry official pointed out that the fact that Indian stocks hadn’t fallen as much as those in south-east Asia, in fact, could be a negative factor.

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He said that a lot of foreign institutional investors (FIIs) probably saw better pickings in south-east Asia now that those stocks had plummetted.While Ahluwalia said that the temporary setback to GAIL wouldn’t necessarily hit the overall disinvestment target of Rs 7,000 crore for the year, even he was forced to add some riders to his statement. Ahluwalia stressed the point that the disinvestment was not just a simple target — there was a broad philosophy behind it.

In which case, the government’s aim was not just to achieve this target in a mechanical manner. “If you force yourself to meet the target, then you’ll sell shares even if this is at an unfavourable price,” he said. He added: “The GAIL episode has increased the probability that we’ll fall short of our target.”

The core group has asked the global co-ordinators to explore the possibility of a suitable disinvestment of GAIL in the domestic market for the time being. This, however, does not seem very probable as new issues in the domestic market are still faring badly. Besides, as a ministry official pointed out, if GAIL offloads equity at a low price domestically now, it will be difficult to go abroad soon and ask for a higher price — local prices are currently in the region of Rs 120 while the government is looking for a price of around Rs 140 from the GDR issue.

What makes the success of the GAIL issue even more critical is that, ministry officials admit, it is the best of the scrips being offered from India to international investors — other scrips lined up after MTNL are IOC and Concor.