Future divestment may go the FPO route

Under the fast-track route, the offer document doesn't need to be cleared by the regulator

The Union finance ministry is attracted by the idea of using the follow-on public offer (FPO) route for future divestments in government-owened companies.

An official who did not wish to be named said allowing for fast-tracking of central public sector enterprise (CPSE) stocks would give more options for divesting government stake.

“We had sought from the markets regulator to rationalise the FPO route to boost retail participation in disinvestment. The discussion paper by Securities and Exchange Board of India (Sebi) is encouraging,” said a ministry official.

Sebi had, earlier this month, issued a discussion paper on speeding the approval processes for issue of securities. It had proposed to extend the fast-track route to CPSEs, without the requirement of a minimum average market capitalisation for public shareholding.

Where any CPSE was not able to comply with any of these conditions, the regulator could grant exemptions.

Sebi had proposed a fast-track route for private companies with an average market capitalisation in excess of Rs 250 crore.

Under this route, the offer document wouldn't need to be cleared by the regulator. Market experts say the timeline for an issue under the speedier route could be reduced from almost four months to only a week.

Historically, the government on major occasions has opted for the easier and faster Offer For Sale (OFS) route for divesting stake. However, the lack of participation from retail investors has dampened the attractiveness of the route.

Sebi data shows participation by retail investors — those investing less than Rs 2 lakh — has been very low in government disinvestment done through the OFS route.

In the 10 government share sales done this way, considered quick and cost-effective for the seller, small investors have bought, on average, 1.4 per cent of the total shares sold. The biggest chunk was taken by institutional investors — mutual funds, insurance companies and foreign institutional investors.

In contrast, retail participation in government disinvestment done through the FPO route has been encouraging. Participation by retail investors in the FPOs of Power Grid Corporation and Engineers India was oversubscribed by 35 per cent.