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| Thin retail draw worries i-bankers |
| Ashish Rukhaiyar / Mumbai Jun 16, 2010, 00:52 IST |
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With the primary market set to see a flood of issues, will retail investors participate in a significant manner? This is the question that is bothering most investment bankers.
There have been more than 10 issues this year in which the retail portion was under-subscribed. The bankers, however, say that this should not always be looked upon as failure, as small investors often route investments through financial institutions.
Early this month, the government said all listed companies should have at least 25 per cent public holding. Existing listed companies with public holding lower than this will have to dilute at least five per cent annually to reach this mark. According to estimates, there are close to 180 listed companies in which the public holding is less than 25 per cent. The dilution would result in fresh paper worth more than Rs 1.4 lakh crore flooding the market.
While listed companies with public holding below 25 per cent will have to dilute by way of a follow-on offer (FPO) or a private placement, the former will involve at least 30 per cent reservation for retail investors. The retail portion of FPOs of public sector majors NTPC, NMDC and REC was under-subscribed. Moreover, the government’s is aiming to raise Rs 40,000 crore through divestment in the current financial year.
Bankers say they aren’t fazed, as FPOs globally attract little retail attention due to the already available public float in the secondary market. “Just track any follow-on offering that has happened in India over the last four-five years and you will see very little retail participation,” said Kalpana Morparia, CEO, JPMorgan India, in an recent interview to Business Standard.
“Direct retail participation (in FPOs) is not going to be very large. But you need to understand that when an insurance company like LIC is buying, it is not the government but millions of policyholders that are getting the benefit. Life insurance does not have institutions,” she explained, adding that initial public offers (IPOs), though, would see “direct public participation”.
The thrust on government offerings is understandable as the bulk of the fresh paper will be from the public sector. Estimates suggest that more than Rs 1.15 lakh crore would be raised by the government sector alone and there would be pressure to involve as many small investors as possible.
Today, the Cabinet Committee on Economic Affairs approved divestment in Hindustan Copper and Coal India. Home Minister P Chidambaram said retail investors would be given a five per cent discount to encourage greater public ownership of government companies.
A head of a foreign investment banking entity said one could also look at revisiting the Rs 1,00,000-limit for retail investors.
“With salary levels going up and people more comfortable investing in the stock market, the limit can be raised. The retail portion is also impacted, as many retail investors apply in the high net worth segment. If the limit is raised, one could see more applicants in the retail category,” he said on condition of anonymity.
The ongoing uncertainty in the secondary market is also a factor. If the scenario does not improve, investor response could be disappointing. The much-hyped first Indian Depository Receipt issue launched by Standard Chartered Plc in May saw its retail segment under-subscribed at 22 per cent.
According to bankers, pricing would play an important role and a conservative approach could tilt the balance in the issuer’s favour. The IPO of SJVN Ltd saw its retail portion getting subscribed more than three times, at a price band of Rs 23 to Rs 26 per share.
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