In a clear signal to the government that the disinvestment process is likely to counter rough weather, investors through the book building route booked only 30.58 million shares at this price which is expected to yield around Rs 184 crore for the government. About 84 million shares of Gail were on offer as against 30.58 million booked leading to massive shortfall in the expected mop-up, sources said. "This will put the VSNL disinvestment process which is currently on under a cloud," Shaun Browne, CEO of HSBC Capital Markets said. The earlier disinvestment exercise by Concor yielded only Rs 225 crore to the government. The government has said that it intends toraise Rs 5000 crore through the disinvestment process to rein in the fiscal deficit at below the 6 per cent mark.

The government had given a mandate to Gail to sell its stake within the price band of Rs 62-68 and the average price of the last ten trading sessions. Analysts said that the pricing has been done at a discount and the government was expected to price the issue at Rs 62-65. Sources said Rs 60 would conform to both the conditions laid down by the government. "This means that a number of bids have come at a price much below the band set by the government," an analyst said.

The disinvestment figure falls below the government expectations as orders from financial institutions led by the Unit trust of India (UTI) were low on account of liquidity crunch. Insurance companies General Insurance Corporation of India and Life Insurance Corporation of India and the State Bank of India were the other major investors in the disinvestment exercise of Gail.

At present, the government holds about 96 per centstake in this company. Gail roadshows for sale of up to 10 per cent government equity in the domestic market through the private placement route had ended yesterday. Kotak Mahindra, DSP Merrill, J M Financial and (I-Sec) were the arrangers for the issue. The government has also allowed Gail to sell another 10 per cent of equity exclusively to PSUs and ONGC is one of the likely buyers.

Against a targeted 5 per cent disinvestment, the merchant bankers and the company have managed to offload only 3.6 per cent equity shares to various institutional investors. The price obtained by the book-building method at Rs 60, which is at the lower end suggests that the market was not keen to pick up shares of GAIL, even at the lower price band of Rs 60.

Possibly, the government decision to go for a cross-holding structure between the three PSUs ie ONGC, IOC and GAIL, have sent wrong signals to the market. If the government continues to use internal accruals of PSUs to fund its fiscal deficit, the earnings of the PSUseven in monopoly business such as GAIL, would get depressed - affecting its attractiveness to investors.