Foreign banks hope for big gains in divestment move

Bank of America Merrill Lynch, Barclays Plc and JPMorgan Chase & Co are competing to sell shares for state-run companies in India as the government plans the biggest sell-off in at least five years.

Robert Morrice, Barclays Capital’s Asia-Pacific chairman, plans to double the London-based firm’s investment banking team in India as it vies to sell stock. JPMorgan hopes for a “slew of disinvestment” by state-run companies, said Kalpana Morparia, the New York-based bank’s chief executive officer in India.

Prime Minister Manmohan Singh’s government pledged to cut holdings in its profitable companies to 90 per cent, accelerating divestments after a five-year slowdown.

The government might raise Rs 25,600 crore ($5.5 billion) from its publicly-traded companies, Standard Chartered Bank said. The government controls unlisted firms worth $144 billion, according to Morgan Stanley.

“The competition for this business is always extremely fierce,” Kevan Watts, country head for Bank of America, said in an interview. “It is a big opportunity. We are talking to many people in the government about how we can help with the disinvestment process.”

Indian share sales will add to an initial public offer rebound in Asia as record-low interest rates and economic stimulus packages fuel a revival in demand for new equities.

China Minsheng Banking Corp, Sands China, Malaysia’s Maxis Bhd and India’s Emaar MGF Land will lead more than $14 billion of sales in the region.

‘Prestigious business’
While the government offers are a “prestigious business,” they typically result in lower fees than private-sector sales, according to Bank of America.

“It is not a very profitable business because the government, understandably, is not prepared to pay very high fees,” Watts said. Bank of America is ranked seventh in advising on local sales this year, according to Bloomberg data. JPMorgan is sixth on domestic share sales, and first in overseas equity offerings by local firms.

Singh, who won re-election in May, said on November 8 he hoped the government sales would accelerate. India netted $11 billion between 1991 and 2008 from asset sales, with the privatisation wave slumping during Singh’s first term as communist allies thwarted plans.

India’s benchmark stock index has risen every day since the government unveiled the stake-sale plan on November 5, extending its gain for this year to 71 per cent. Companies that may sell stock include MMTC, the country’s largest international trading company, and NMDC, its biggest mining company.

Less than 2007
Indian companies this year have raised Rs 60,400 crore from domestic shares sales, including private placements, rights offers, initial share sales and secondary sales, according to Bloomberg data. That’s less than the Rs 78,200 crore raised in 2007, before the global financial crisis sapped demand for equities.

Of this, state-run companies led by NHPC and Oil India raised $2.05 billion, according to Bloomberg data. Last year, Rural Electrification Corporation led state companies in selling $1.06 billion of stock.

Shares of hydroelectric power producer NHPC have dropped 8.9 per cent since their September 1 trading debut, valuing the company at Rs 40,250 crore.

Oil India has climbed 11 per cent since it listed on September 30. Rural Electrification, which began trading March 12, 2008, has more than doubled.