The price of $ 9.25 per GDR (two GDRs represent one share) is much below the expected price of $ 12 per GDR which the government was hoping to obtain when it set out on its road shows. The government has raised $ 185 million (around Rs 785 crore) through the offering.

A statement issued by VSNL said that the offering evoked "exceptional interest" from high quality investors leading to a demand of 37.95 million GDRs with a total bid of $ 341 million. "It may be mentioned that the government disinvestment offer was for 20 million GDRs, including a greenshoe option, against which the demand of 37.95 million GDRs wasregistered," the company stated.

VSNL acting chairman and managing director Amitabh Kumar said: "We have been able to generate a very high quality demand from discerning investors even in very difficult market conditions, particularly for the emerging markets".

"The quality demand from international investors reaffirms their faith in VSNL as a global telecom service provider," he added. VSNL maintained that the sentiment for equity issues in Asia and other emerging markets has been extremely difficult with many major issues being either "pooled or being traded down". "Against this, the demand generated by VSNL indicates the value which is perceived by investors in India's premier telecom company," VSNL stated.

The government has made no allocation to the banks and the insurance companies that had bid for VSNL's shares in the domestic market. Merchant banking sources said that domestic bidders had bid at Rs 725 while the government priced the VSNL share at Rs 786.

Among the bidders were Life InsuranceCorporation of India, General Insurance Corporation and its four subsidiaries, State Bank of India and its associate banks including State Bank of Saurashtra. Merchant banking sources blamed the task force's insistence on running a common book for the international as well as the domestic offering for the non-allocation to domestic investors.

The price of $ 9.25 is at a discount of 1.40 per cent to the last traded GDR price (prior to the pricing) of $ 9.37 per GDR at the London Stock Exchange. It is, however, at a 6 per cent premium to the average last 10 days price at the Bombay Stock Exchange (BSE). According to VSNL, the price is also 15 per cent more than the closing price of Rs 682 at BSE on February 10, the date when the roadshows for the GDR issue closed. The price is at a premium of 12 per cent to the closing price of Rs 699, the scrip closed at on Thursday.

The price pales before the $ 13.93 price which the company had achieved for its GDR offering less than two years ago. Market players saidthat following the listing of the fresh GDRs on Thursday, sentiment in these perked up and they were traded at about $ 10 per GDR.

Even though the company formally claimed that the issue was a big success, sources close to the deal said that the government could have got a much better price but for a few factors that worked against it. The confusion regarding the monopoly status of the company, the entry of MTNL into the Internet area and delays by the government in filling up key vacancies in the company, could have all led to the company not getting a higher price, said sources close to the deal.

"The company went to the market without a full time chairman-cum-managing director and a finance director appointed less than a fortnight before the roadshows. This does not reflect too well on a company," said an analyst at a foreign brokerage.

The head of another foreign brokerage said that the premium over the domestic price which the issue has got is not very high as historically the GDR of VSNL hasalways had a high premium to the underlying share given the high level of illiquidity in the scrip domestic market.