Suuti sale: Government spoilt for choice

No sooner the Specified Undertaking of Unit Trust of India (Suuti) put out a request for proposals (RFP) inviting merchant bankers to bid for a mandate to sell its stakes in some 51 companies, it has started receiving several options it could consider, according to newspaper reports.  

Some of these options are new, while others are not very new. 

One of the options the Suuti administration looked at before they even met the first interested merchant banker was to keep promoter-less blue-chips Larsen & Toubro and ITC out of the sale process. This would make the entire sale process meaningless because these two entities account for three-fourths of the value of the holdings between them.

Merchant bankers would rather prefer that they be appointed with the limited mandate of selling the Axis Bank shares alone rather than taking up the time consuming and resource sapping process of dealing with all 51 entities in the portfolio.

Other option was to off-load these shares to Life Insurance Corporation of India (LIC). The state-owned insurer seems to be limited by caps imposed by the insurance regulator. However, despite a cap in banking law, which limits voting rights of single shareholders to 10 per cent, LIC has been acquiring shares in public sector banks in excess of these limits. In one of them, Corporation Bank, it held 19 per cent at the end of September 2015. By December, this went up to 21.22 per cent.  So, when it comes to LIC, which is governed by its own statute and comes with its own size-related issues, making exceptions has been the rule for the government. The question is will one be made for the Suuti sale as well?

Among other options include placements with general insurers, who already hold shares in these companies. But general insurers are much smaller in size when compared to LIC. If strategic issues are a concern in diluting stakes in L&T and ITC, then the government might need to evaluate concentration issues while making these smaller entities buy shares which they can’t sell easily.

British American Tobacco (BAT), the largest shareholder in ITC can’t add to its stake apparently because FDI in tobacco is capped. But, why is FDI capped in tobacco is a point to ponder for another day. 

One feasible option is to wait for the professionals – the merchant bankers – to reach out to all potential investors and come up with the best price for the stakes. Given their sizeable stake in some of the companies, the government is likely to fetch a nice premium to the market price. 

It would be an insult to the depth of our capital markets and the ability of its hundreds of institutional investors that only state-owned institutions have the wherewithal to buy and hold these important companies without affecting their strategic positions. Merchant bankers can send in their bids by August 1.