From GIC Re to Hindustan Aeronautics, free float for newly listed PSUs low

In the past six months, five public sector undertakings (PSUs) have entered the market via initial 

public offerings (IPO). The Centre has diluted an average 15.4 per cent in these five companies in their maiden offerings. However, most of the shares on offer have been picked by state-owned institutional investors such as Life Insurance Corporation of India (LIC).

The ‘actual’ free float for these companies –excluding the shares bought by state-owned institutions – is an average 7.6 per cent.

For instance, in Hindustan Aeronautics (HAL) IPO, the central government offloaded 10 per cent stake. Nearly, 7 per cent stake in the company was picked by LIC and other state-owned institutions. Therefore, the actual free float in HAL is 3 per cent.

The trend is similar in case of General Insurance Corporation (GIC Re) and New India Assurance, which have only 5-6 per cent of their market capitalisation as free float.

Free float are the shares that are not owned by promoters or are under lock-in and are readily available for trading in the market. Shares owned by LIC or other state-owned institutions are technically not locked-in, however, one can argue that these are not ‘public’ holdings in the true sense.

“For better price discovery, you need the participation of a wide range of investors. In recent PSU IPOs, we have seen many shares getting picked by state-owned institutions due to tepid demand from the public. This is a case of moving shares from one pocket to the other. Therefore, the actual shares available for trading are low. This impacts liquidity at the counter,” said an analyst with a foreign brokerage.

GIC Re, New India, Bharat Dynamics (BDL), HAL, and Mishra Dhatu Nigam (Midhani) are the latest PSU entrants to the stock market. Barring BDL, an average 60 per cent of the shares sold in the IPO were bought by LIC and others government institutions.

Most of these IPOs saw little or no participation from foreign portfolio investors (FPIs).

The government has raised more than Rs 1 trillion since April 1, 2017, by selling its stake in various PSUs. Of this, Rs 360 billion came from its stake sale in Hindustan Petroleum (HPCL), Rs 10 billion from GIC Re IPO and Rs 14.5 billion from the Bharat-22 Exchange Traded Fund (ETF). Oil and Gas Corporation (ONGC), which is also a state-run institution, purchased the government’s stake in HPCL.