• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Raghuvir Srinivasan

CONSIDER this. "X", promoter-shareholder in X Ltd, a listed company, makes a public offer to sell a part of his shares through the book-building route.

He sets himself a deadline of 15 working days from the date of closure of offer to transfer the shares to the successful bidders. The issue is oversubscribed.

But three weeks after the close of the offer (well after the deadline for transfer of shares), the allotment process is not complete. While some successful bidders have received allotment, others have neither been allotted shares nor refunded their money.

Worse, the allotments that have been made are erroneous with some bidders receiving more than what they had bid for. Unaware of the error, these shareholders sell a part or the whole of the shares allotted to them in good faith.

Within hours though, they are informed that they do not own a part of the shares that they sold. "X" has meanwhile received and accounted for the proceeds from the sale of his shares.

Now substitute the Government for "X" and Oil and Natural Gas Corporation (ONGC) for "X" Ltd. The picture is complete.

This is what has happened in the fiasco of the ONGC public offer allotment where some shareholders have been erroneously allotted shares more than what they were entitled to while others have neither received shares nor their refund orders till date.

While some high net worth individuals (HNI) have received more than what they had bid for, some retail investors have been allotted less.

The curious part of the story is that soon after the close of the issue, the Government went on record that the HNI category was oversubscribed while the retail segment was undersubscribed.

If that were true, then all retail bidders should have secured 100 per cent allotment. It is obvious that either the original statement on the subscription was misleading or the allotment process has gone completely awry.

What we have here is a first class mess with the Government in the thick of it all. It has taken credit for the massive sum of Rs 10,542 crore from the sale of 10 per cent stake in ONGC but those who paid up that sum are yet to receive value in return. There appears to be a clear case of contractual default involved here.

And the mess has raised a number of difficult questions the most important of which is: What happens to those shareholders who sold what was allotted (erroneously) to them and who have now been penalised with the exchanges auctioning their trades?

These shareholders have been forced to pay up to Rs 867 per ONGC share in the auction and their collective loss is estimated to be close to a crore of rupees. Who will compensate them for this loss?

Logically, the burden should fall on the registrar and the selling shareholder, in that order which, in the present case would be MCS and the government respectively.

The ideal option may have been to annul all the trades that were done on that fateful Monday, March 29, but then that is not feasible now simply because some of the sellers could have been existing ONGC shareholders who had nothing to do with the public offer.

Annulling all trades would mean penalising them.

What about those who are yet to receive allotment or refund? What does the ONGC offer document say about the liabilities of the respective parties?

There is an express commitment from the Government (the selling shareholder) that it will "ensure the transfer of the equity shares within 15 working days from the Bid/Offer closing date".

That period ended on April 5. The offer document says the Government will pay interest at 15 per cent per annum for delays beyond this period. So is the government going to do that?

Nobody knows, simply because it is silent. The last that was heard from it was on March 31 when the Disinvestment Minister, Mr Arun Shourie, said the market watchdog, the Securities and Exchange Board of India (SEBI), would investigate the issue.

Ten days later we are still to hear about the results of the SEBI investigation.

If SEBI has indeed gotten to the bottom of the issue, it is only fair that it shares its findings with investors.

The responsibility for the fiasco has to be fixed and those liable have to pay the penalty, even if it is the government in its capacity as the selling shareholder. The earlier this is done, the better.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
On stock option and employee stock ownership plans

Copyright © 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line