Govt nudges bankers to skip big private issues for a while

Move aimed at avoiding crowding of public issues during the Centre's mega disinvestments in coming months

The central government has informally asked investment bankers brought in to manage share sales to abstain from taking big private-sector mandates in the coming months.

This is to avoid a glut of new paper at a time when the government wants to dilute its holding in select state-run enterprises. The Centre is aiming to raise about Rs 40,000 crore by divesting holdings in public-sector undertakings. On the list are Steel Authority of India (SAIL), Oil and Natural Gas Corporation (ONGC), Coal India Ltd and NHPC.

The bulk of the disinvestments were planned during October and November and the department of disinvestment (DoD) wanted to avoid any other big share sale during that period, to ensure smooth sailing, two people with knowledge of the matter said. “The amount the government is planning to raise is unprecedented and bankers have been asked not to crowd the market,” said a source.

Most investment bankers working with the government on the disinvestment programme didn’t want to comment, given the ‘sensitivity’ of the issue.

A DoD official denied having asked bankers not to take private-sector mandates but admitted to have told them to ensure no “clutter”. “We will ensure the issues don’t get cluttered. We have appointed bankers, whose job will be to advise us,” said a senior official in the department.

Experts say market conditions are currently conducive for big share sales. However, the issues have to be properly spaced to ensure healthy participation from institutional investors.

Although there are no big initial public offerings in the immediate pipeline, there have been continuous share sales by listed companies, through qualified institutional placements (QIPs) and block trades, thanks to the market’s buoyancy.

India’s benchmark indices have gained nearly 30 per cent so far in 2014, the highest among major global markets. Equity capital raising of at least Rs 50,000 crore, predominately through QIPs and block trades, has taken place this year. On an average, a little over Rs 6,000 crore has been mobilised every month through equity issuances in listed companies, data from Bloomberg show.

The government is likely to begin the 2014-15 disinvestment programme, where it aims to raise Rs 43,000 crore, by selling five per cent in SAIL later this month.

This could be followed by disinvestments in ONGC and then Coal India, where it could raise about Rs 15,000 crore and Rs 20,000 crore, respectively.

If all these go through in October, considered a good month for institutional flows, it will be a record for fund raising.

Most of the leading investment banking firms are working on share sales of SAIL and ONGC.

Incidentally, in 2011, four investment bankers had come under fire from the government for taking up the mandate for the Tata Steel follow-on public offering (FPO) after being selected to manage the SAIL offering. The timing of both had coincided.

Interestingly, Tata Steel had successfully managed to raise Rs 3,500 crore through its FPO, while SAIL’s planned Rs 8,000 crore offering failed to hit the market.