It's best time now for divestment: PRIME Database

Primary market tracking firm Prime Database has said it is the best time for the government to divest its stake in PSUs and it should target at least 60 public offers in five years.

"This is the best time, as ever for the government to divest aggressively. In the 60 months of the new government, we should target at least 60 IPOs. The target should be one IPO per month," PRIME Database Chairman and Managing Director Prithvi Haldea said in a suo motu note to the Finance Ministry.

He said the government should not behave like private promoters to time IPOs at an "opportune" time.

"There is nothing as on “opportune time”. The government waited for months to float the IPOs of NHPC and Oil India, for the market conditions to improve in the hope of getting better valuations.

"Private promoters can be greedy, the government should not be. Even if it is looking for gains, it should realise that the real and substantive gains would accrue to it later," he said.

He added that good beginnings have already been made with the flotation of two PSU IPOs, NHPC and Oil India, which were in the pipeline for nearly two years now. Regrettably, he added, the next one is still nowhere in sight.

"Though several announcements have been made, no other PSU has yet even filed its offer document with SEBI," Haldea added.

To make the huge divestments happen, radical new approach is warranted, which will also require a relaxed regulatory framework, the note said.

Haldea suggested to relax the minimum offering clause to ask companies to offer certain percentage of shares at the time of listing.

Even at 5 per cent, the issue size in many cases will be very large, he said, adding the focus should be on the float size and not on percentage.

He also pitched for to do away with IPO grading for PSUs and for dropping the requirement of independent directors.

"Dispense with IPO grading for PSU IPOs, given the high credentials of the PSUs, and in any case, given the futility of IPO gradings," he suggested.

Of the two recent disinvestment cases, NHPC got three grades out of maximum five from ICRA for its IPO, while Oil India got four out of five gradings from Crisil, justifying Haldea's contentions.

Haldea further said, "Drop the requirement of independent directors. This, given the fact that PSUs have additional accountability to the CAG, CVC and the Parliament In any case, despite non-compliance for more than 3 years by already-listed PSUs, no regulatory action has been taken."

As per the famous clause 49 of listing agreement, any listed company have to fill half of the board with independent directors in case chairman is executive, and one third in case chairman is non-executive. Haldea said that raising fresh capital through the listing process can help PSUs in their plans of modernisation, expansion and diversification.

Moreover, an initial listing helps the company to raise more capital easily and efficiently. Listing also raises a company’s public profile with customers, suppliers, investors, financial institutions and the media, he added.

The new UPA government has expressed its intention to disinvest in public sector companies, while retaining at least 51 per cent in them. Two companies — NHPC and Oil India — have already come out with their IPOs.

Share of NHPC closed at Rs 34.70 on Friday, down Rs 1.30 from its offer price of Rs 36.