CAG censures PFC initial share sale process citing lower price

The Comptroller and Auditor General (CAG) has criticised state-owned Power Finance Corporation (PFC) for fixing lower price band for the Rs 1,000 crore IPO in 2007 and said the subsidiaries of the issue’s lead managers made about Rs 11 crore profit by selling the company’s shares soon after the listing.

CAG also noted a higher issue price could have fetched Rs 23 crore more from the initial share sale of PFC.

A leading lender for the power sector, PFC mopped up Rs 997.19 crore through initial share sale in January/February 2007. The price band was Rs 73-85 per share and the issue price was fixed at Rs 85. “PFC floated the issue with a price band of Rs 73-85 though SEBI guidelines permitted a difference of 20 per cent between the upper and lower end of the price band.

PFC could have fixed the upper price band as Rs 87 (instead of Rs 85) which would have fetched Rs 23.46 crore more”, CAG report said.

The price band was approved by PFC’s Board of Directors on the basis of recommendation from the Book Running Lead Managers (BRLMs). ICICI Securities, Kotak Mahindra Capital Company and Enam Financial Consultants Private Ltd were the BRLMs for the IPO, according to PFC’s Red Herring Prospectus of the offer issued on January 10, 2007.

The CAG has not specifically mentioned the names of BRLMs. According to the apex auditor, PFC alloted 37.37 lakh shares worth about Rs 31.76 crore to subsidiaries of BRLMs. These shares accounted for 6.37 per cent of QIB (Qualified Institutional Buyer) portion.

“There was a conflict of interest since the BRLMs were advising PFC about pricing while the subsidiaries might be looking for trading gains,” the report said.

Queries sent to ICICI Securities, Kotak Mahindra Capital Company and Enam Financial Consultants, seeking their comments on the CAG report, remained unanswered.

Moreover, CAG observed that 35 out of 37 subsidiaries of BRLMs, who were alloted shares, divested their shares on the listing day or soon thereafter and made a profit of Rs 10.93 crore (35.78 per cent of their investment). The report noted that on listing day, PFC shares were quoted at Rs 113 per share.