Bankers to manage Suuti stake sale for Rs 1

Citi, ICICI Sec, Morgan Stanley bag Rs 60,000-cr mandate

Investment bankers will be managing the Rs 60,000-crore share sale in companies including ITC, Axis Bank and Larsen & Toubro (L&T) by the government for a token amount of Rs 1, said four people with direct knowledge of the development.

The government has selected Citibank, ICICI Securities and Morgan Stanley to handle the so-called Suuti (Specified Undertaking of the Unit Trust of India) stake sale. State Bank of India (SBI), JM Financial and HSBC have been selected as back-up options in case any of the first three investment banks are unavailable due to a ‘conflict of interest’ situation.

“The Suuti mandate is essentially for sale sales in Axis Bank, L&T and ITC. All three are blue-chip and highly liquid names. There will be demand from many institutional investors who want to take exposure in these stocks. Therefore, banks had no qualms in quoting near-zero fees,” said an investment banker.

The government is looking to offload shares in 43 listed companies and eight unlisted companies held under Suuti. ITC, Axis Bank and L&T contribute for the bulk of Suuti holdings – Rs 61,000 crore – in value terms. The share sale is likely to be spread out over a three-year period and the bankers have been selected for that duration.

The government, through Suuti, owns a 11.1 per cent stake in ITC (valued at Rs 34,000 crore at Monday’s rate), 11.5 per cent in Axis Bank (Rs 16,284 crore) and 8.2 per cent in L&T (Rs 11,120 crore).

A banker involved in the sale process said the Centre might sell in tranches through the offer for sale (OFS) route.

“Although banks selected for Suuti mandate may not earn anything from the government, they will get to earn commissions from buyers participating in the OFS,” he added. Banks quoting near-zero fees to bag big-ticket mandates in state-owned companies is not an uncommon trend in the Indian markets.

“The loss in revenue, if any, is compensated by a boost in league table rankings. The Suuti mandate will be a big short in the arm in terms of ranking for the selected banks for the next three years,” said an investment banker asking not to be named.

The final selection of the three bankers was made on criteria such as experience and capabilities in handling transactions, past performance with the Department of Disinvestment and sector expertise, experience and understanding of companies.