Centre mops up Rs 170 billion through fourth tranche of CPSE ETF

The offering generates demand worth Rs 250 bn, says government official

The Centre has managed to raise Rs 170 billion through the fourth tranche of the CPSE ETF, a fund that comprises 11 state-owned firms. Senior government sources said the follow-on fund offering (FFO) saw subscription worth Rs 250 billion, of which the government decided to retain Rs 170 billion.

The CPSE ETF had a base issue size of Rs 80 billion, with a green-shoe option to retain an additional subscription of Rs 60 billion. However, gauging higher demand, the Centre enhanced the issue size to Rs 170 billion.

People in the know said the offering saw broad-based participation from mutual funds, retirement funds, insurance companies and foreign institutional investors (FIIs). State-owned institutions, including Life Insurance Corporation (LIC) and the Employees’ Provident Fund Organisation (EPFO), too, submitted big ticket applications on the last day, said a source.

“This is the the largest-ever equity fund raising through ETF route in India,” said Sundeep Sikka, CEO, of Reliance Mutual Fund. “We have seen an overwhelming participation from FIIs, retirement and pension funds and domestic institutions.”

The government didn’t have the option of retaining more than Rs 170 billion, given it would have led to dilution of its holdings in some of the underlying securities to below 53 per cent. The move would have required an approval of an alternative mechanism, headed by Finance Minister Arun Jaitley.

The 11 state-run firms that form the CPSE ETF are Oil and Natural Gas Corporation, Coal India, Indian Oil Company, Oil India, Power Finance Corporation, REC, and Bharat Electronics, while NTPC, SJVN, NLC and NBCC are new entrants.

The CPSE ETF ended at 1,968 on Friday, down 1.6 per cent, with eight of its components declining. The new units will be issued at a 4.5 per cent discount to investors who applied in the FFO. 

The FFO had opened for subscription on Wednesday and closed on Friday. 

On Tuesday, institutional investors had bid for units worth Rs 133 billion in the anchor category.

The discount is given on the weighted average price of underlying shares during the FFO period.

Some of the investors who applied in the anchor segment were Societe Generale, Bank of America Merrill Lynch, Morgan Stanley, Nomura, ICICI Prudential Mutual Fund, LIC, and SBI Mutual Fund, said sources.

The success of the CPSE ETF has given a boost to the government’s disinvestment kitty. The Centre now raised Rs 322 billion — 40 per cent of the target — as part of 2018-19 disinvestment programme.

In the remaining four months of the fiscal year, the Centre plans to raise another Rs 478 billion through buybacks, initial public offerings (IPOs), and offer for sale (OFS) in state-owned companies as well as those with Specified Undertaking of the Unit Trust of India (SUUTI) holdings.