Govt Studies Pvt Placement Route To Divestment

The government is considering offloading its equity in public sector undertakings through private placement in domestic markets in future.

The price thus clinched through the book building route used in private placements will be the benchmark against which the government will effect offerings to the small investor. The price offered to the small investor will be at a discount to the book-building price.

It has been the governments view that a portion of divestment should be earmarked for the small investor.

In fact, some sections within government believe a capital market revival hinges on the return of small investors, who have deserted the stockmarkets in recent years.

 

The thinking within government is that since only institutional investors take part in the private placement market, it would be a good means of ascertaining the right price.

The alternative route of fixed-price public offers might not fetch the government the highest price, officials said. The government may also adopt the book-building methodology in public issues as a means of effecting the divestment.

However, the final decision on whether to go in for private placement through the book-building route would be left to the core group on disinvestment, headed by cabinet secretary TSR Subra-manian.

The Disinvestment Commis-sion had recommended that the pricing achieved in the offering through the issue of global depository receipts (GDRs) should be the benchmark price for the domestic market.

The commission had suggested that the domestic price should be at a 10 per cent discount to the GDR price.

In the current year, the government has only made international offerings of its equity holdings in PSUs so far. While it concluded its GDR offerings in the case of Videsh Sanchar Nigam Ltd and Mahanagar Telephones Nigam Ltd successfully, it was forced to defer the proposed Gas Authority of India and Container Corporation offerings in the face of inadequate market demand.

The disinvestment process, which was kicked off in 1991-92, had initially adopted the auction method. Here too, it had first taken to the practice of bundling wherein good scrips were included with the loss-making ones and later opted for auctioning off the scrips. The auction route was abandoned as it was felt that some financial institutions were operating in a cartel to force the price down.