I-bankers upbeat on new selection norms for PSU divestment

Importance of bid fees far less; stress on technical record and expertise.

The change in lead manager norms for divestment of public sector has enthused investment bankers. A majority of them say this will avoid the ‘mad competition’ among merchant bankers to bid for PSU offers.

Earlier, more weightage was given to the fees quoted by bankers. Hence, investment banks used to bid at zero fees to bag disinvestment mandates, which also impacted the quantum of efforts put in by them. It had turned out to be a non-revenue exercise for bankers, as most of them would bid only for the sake of competition.

But, according to the new norms, nearly 70 per cent weight will be given to technicals and only 30 per cent to financials. The technical aspect looks at the background of lead managers and the kind of issues they had managed in the past.

Bank of America Merrill Lynch (BofA ML), which has so far stayed away from the government divestment programme, may bid for the coming issues. “We discussed it internally but decided against bidding. But, now that fee is not the only criteria, and technical issues will be given weight, we will consider bidding,” said Saurabh Sonthalia, Managing Director and Head (ECM), BofA ML.

Under the new norms, merchant bankers would be evaluated on the number of applications and the amount procured by them for various issues handled for the Department of Disinvestment. The new norms also stress on the marketing strategy and post-issue support, with specific reference to Indian issues managed in the past.

One of the important parameters set out by the Department of Disinvestment is the need for merchant bankers to have local presence and strength in attracting retail investors. This assumes significance in the light of recent initial public offers and follow-on offers where retail response was muted. The ministry has clearly asked bankers to indicate distribution network strength to elicit maximum retail participation.

“We will definitely be bidding for all the divestment issues,” said Sunit Joshi, executive vice-president at SBI Capital Markets. “The norms for selecting lead managers for Coal India, which would be the largest divestment, would be different as higher weight would be given to technicals.”

Earlier, in an interview with Business Standard, Sunil Sanghai, managing director and co-head of Investment Banking, Goldman Sachs, had said, “The government is an important constituent and government-owned companies are large and globally important. It is well known that revenues from government transactions are lower than that from the private sector.”

The government plans to mop up Rs 40,000 crore from disinvestment of state-owned companies in 2010-11. “Engineers India would open in June, followed by Coal India in July,” said S Pradhan, joint secretary, Department of Disinvestment. “These issues would be followed by Hindustan Copper, SAIL, Power Grid Corporation and IOC at the end of the year,” explained Pradhan. While Engineers India would be around Rs 1,125 crore in size, Coal India would be the largest-ever divestment in the history of India, he added.

SJVN IPO priced at Rs 23-26
The price band for the initial public offer of SJVN has been fixed between Rs 23 and Rs 26. Retail investors would be allotted shares at a five per cent discount to the issue price. The IPO would open for subscription on April 29 and close on May 3. Assuming the higher end of the band, the company would mobilise a little over Rs 1,000 crore from the offer.

The public offering of 415 million shares of Rs 10 each would be done through a 100 per cent book building method and includes reservation of 3.3 million shares for eligible employees. The offer would constitute 10.03 per cent of the paid-up equity capital of the company.

At least 60 per cent of the issue has been reserved for institutional investors, while the retail and non-institutional portions have been capped at 30 per cent and 10 per cent, respectively. Lead managers for the issue are JM Financial, IDFC Capital, IDBI Capital and SBI Capital Markets.