Promoters of Godrej Properties to sell stake through IPP route

This follows muted response to ONGC & Wipro share sales under auction method

After a lukewarm response to the offer for sale (OFS) route for offloading equity stake in companies, promoters of Mumbai-based Godrej Properties have decided to test the institutional placement programme (IPP) route to sell a 10.6 per cent stake in the company.

Both OFS and IPP were introduced by the Securities and Exchange Board of India (Sebi) this year to allow promoters to bring their stakes to the stipulated limit. The regulator has fixed June 2013 as the deadline for promoters to ensure a minimum public shareholding of 25 per cent in their companies.

The founders of Godrej Properties, who own around 84 per cent in the company, plan to sell 7.4 million shares on March 22. Godrej has set a price band of Rs 575-620, with the share sale expected to raise between Rs 425-460 crore. The scrip closed at Rs 640 on the Bombay Stock Exchange on Wednesday.

INSTITUTIONAL PLACEMENT ROUTE: KEY FEATURES

• Bidding under Asba only 
• Only Qualified Institutional Buyers to participate 
• Bids to be placed through syndicate banks and members only 
• Three bids allowed per application 
• Issue could have a floor price or a price band
• The bids made cannot be revised 
• Issue shall be kept open for maximum two days 
• Allotment to be made on a proportionate basis, price-priority basis or according to the criteria in the offer document 
• Allocation/allotment to be overseen by stock exchanges

“The issue will sail through easily. The lower end of the price band is at a 10 per cent discount to the market price. Also, the money raised will go to the company as it is a fresh issue of shares,” said S P Tulsian, an independent equity advisor.

While stock exchanges control share sales under the OFS route, bank syndicates and registrars have wider roles in IPP. Bidding would be done under Asba (Applications Supported by Blocked Amounts) and allotment and settlement would be the responsibility of the issue’s registrar. This is unlike OFS, where the designated exchange handles these issues. Under IPP, the exchange’s role would be to receive bids on its platform, while the share sale would be conducted through the book-building process.

OFS adopts the auction route for share allotment. The auction is conducted during normal market hours and bid quantities are updated on real-time basis. All bids are required to be backed by 100 per cent cash margins.

Government-promoted Oil and Natural Gas Corporation (ONGC) and Bangalore-based Wipro, which adopted the OFS route for share sale, witnessed muted response from investors. While the ONGC offer was bailed out by Life Insurance Corporation of India, Wipro could sell just 51 per cent of the shares on offer. According to experts, apart from a lack of understanding of the process in the market, a higher-than-expected auction floor price played spoilsport.

OFS is considered an innovatve and quick way for promoters to raise money. It has cut the role of syndicate banks and the registrar, thereby turning out to be cost-effective. However, the process drew a lot of flak during the ONGC issue, when one of the exchanges rejected some bids, leading to a major chaos.

Through the OFS and IPP routes, promoters can avoid the relatively more expensive and time-consuming follow-on public offer (FPO) route for stake sales. For exchanges, OFS simply means more business as a large chunk of shares changed hands on their respective platforms, giving them leverage to attract more companies and trader participation.

Under IPP, banks and financial institutions, including mutual funds, insurance companies and foreign institutional investors, would be able to participate. At least 25 per cent of the issue is reserved for mutual funds and insurance companies.