The government's offer to sell a 10 per cent stake in ONGC, estimated to net between $2 billion (Rs 9,000 crore) and $2.5 billion (Rs 13,500 crore) is the largest public offering so far in the Indian markets, and globally, second only to China Life's recent IPO which raised $3.4 billion.

The Divestment Development: Complete Coverage

According to Prithvi Haldea, managing director of Prime Database, the real gain to the government as a result of this offering is around Rs 10,000 crore (Rs 100 billion) from both the issues, including Gas Authority of India.

While it is expected that the pricing will be at a discount to the market price, Haldea says that pricing the offer realistically will be more beneficial for the issue and the primary markets in general.

"By pricing (the offer) realistically, the doors will open for bringing in millions of investors back to the primary markets, which will not only help future divestments but also sentiments relating to the primary market.

"We should be conscious that if these issues are done through book-building and the final offer price is close to the market price, it may not only affect the response to the issue but also entail a backlash whenever the market price falls below the issue price."

For listed companies, the issue price can be determined by taking the weighted average of the market price of the last six months and discounting it by 20 per cent.

To prevent any market distortions or pre-IPO selling pressures, the final price should be announced only a day prior to the opening date.

For the non-listed companies too, the fixed price method should be adopted. The merchant bankers to the issue are expected to adopt this method, market sources expect.

The scheme for allotment should ensure as wide a distribution of the shares as possible. No individual investor should get shares worth more than Rs 50,000 in allotment.

Large sales by institutional investors can often destabilise the prices but a very wide distribution should reduce the post-listing selling pressure, merchant bakers close to the development said.

If the Government, however, insists on not reserving the entire issue for the retail investors, it should at least reduce the FII quota from the present 60 to 10 per cent and increase the retail portion from 25 to 75 per cent, they said.

The twin (ONGC and GAIL) offerings, is completed within this fiscal, will enable the government to more or less achieve the divestment target of Rs 13,200 crore (Rs 132 billion). The proceeds for the current year stand at approximately Rs 1,330 crore (Rs 13.3 billion) till now.

Meanwhile, Kotak Mahindra quoted the lowest fee of 0.075 per cent of the amount realised for the ONGC mandate, while the lead managers for the Gail offer will get 0.147 percent of the proceeds, merchant banking sources said.