The Hindu Business Line : Lessons of a fiasco

OUT OF THE fiasco that the ONGC post-allotment stage has become, several constructive messages might emerge. The failure to complete the allotment in a reasonable time has left many investors in the lurch. Consequently, the Government's proclaimed success in pushing through six public offers in a record time of one month has become untenable. For, though the Government achieved many goals — the disinvestment target for last fiscal was reached comfortably — the failure to anticipate fairly routine bottlenecks at the post-issue stage has blotted the copybook.

Not just in the ONGC issue, but even in the earlier public offer of GAIL, there were genuine complaints from many retail investors. A typical one had to do with the determination of "the cut-off price" at which investors' applications were accepted. Applications for the ONGC offer were accepted at the cut-off minus the 5 per cent discount allowed for retail investors (for all the issues) whereas for GAIL the cut-off had been the determinant. Such confusion could easily have been avoided had the Government taken a uniform stand right at the beginning of the issue season and, more pertinently, publicised it well. Since a more general complaint has been one of investor alienation from the type of issue procedure followed, nothing but adequate publicity, at least on the individual pricing norms, would have helped. What is infinitely worse is that investors have nowhere to go to redress their grievances. More than a month after the closure of the ONGC offer many investors have neither received their demat credits nor refunds. The registrar to the issue seems overwhelmed by the volume of work. It is regrettable, however, that the other capital market intermediaries, especially the high profile merchant bankers, having basked in the limelight earlier, should now shirk responsibility by pointing fingers at the registrar whose `human error' allegedly "spoilt all the good work" they did pre-issue. Since issue management is entirely a team effort, there is really no point in blaming one agency alone.

Anyway, it is the merchant banker's job to advise the issuer in the selection of other capital market intermediaries, including the registrar. In the instant case, blamed was the moribund primary market infrastructure due to a paucity of issues. The implication is that no registrar would have been able to cope with the tremendous workload that these six issues entailed. If that were so, the correct advice would have been to stagger the issue schedule instead of risking what is now claimed to be "a systemic failure". That course would have suited many investors as well. Many were unable to recycle their investments in such a tight schedule. The ONGC issue, coming last in the series, has virtually locked up their money due to faulty allotment procedures. The ICICI share issue, coming next, seems to have received fewer retail applications than expected, possibly a direct fallout of the ONGC fiasco. One also expected SEBI to be more proactive by anticipating the difficulties that ordinary investors might face. After all, registrars, like any other intermediary, need to be licensed by the regulator. Though belated, the decision to set up a committee to look into capital market infrastructure is welcome.

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