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Pr:ivatisation for the people The Indian Express
New Delhi, July 13: LAST week Pravin Shah finally had cause to celebrate. A Mumbai-based retail investor who lost money in the market in the last five years, Shah made a capital gain of 31 per cent on his little portfolio of 50 Maruti shares on the listing day.
New Delhi, July 13: LAST week Pravin Shah finally had cause to celebrate. A Mumbai-based retail investor who lost money in the market in the last five years, Shah made a capital gain of 31 per cent on his little portfolio of 50 Maruti shares on the listing day.
Small investors like Shah are smiling again. So are Disinvestment Minister Arun Shourie and his team.
After years of hibernation, the Maruti initial public offering (IPO) of shares has given them returns which were till recently unimaginable in a falling interest rate regime.
On the other hand, the Maruti IPO also opens up a non-controversial route to sell government companies that are due for sale later this year. A route that will benefit retail investors directly and was earlier traversed by former British Prime Minister Margaret Thatcher. Advocating improving efficiency and encouraging employees to be shareholders within their own firms, Thatcher’s privatisation programme had raised huge sums of cash (£2.5 billion between 1985 and 1986) and another £4.7 billion in the following three years. By 1987 Thatcher had sold off 17 major institutions to those in the general public who could afford to buy shares.
India can repeat the UK experience. ‘‘The stock markets are buoyant and reached a 16-month high riding the Maruti IPO wave. This is one of those disinvestment success stories which the government was waiting for to sell privatisation to the voters of this country in the next election,’’ says Pawan Dharnidharka, a BSE stock broker. Since the government started its disinvestment journey it met resistance from almost all quarters. From ministers within the government to union leaders, and employees of the companies on the disinvestment list, the mood was more of suspicion than of embracing privatisation for the long term welfare of the companies.
And then came the Maruti’s privatisation which brought over Rs 2,000 crore to the government of India’s kitty. In fact, the response to the Maruti IPO took even the Indian government by surprise mainly because it turned out to be the country’s largest book-built transaction in the capital market’s history, receiving bids valued at over Rs 10,000 crore.
This resulted in an unprecedented retail response of nearly 300,000 investors, the highest number ever in an IPO through book building. ‘‘With a public issue oversubscribed more than ten times, we are aware of the special place we have in this market and in this country from putting the middle class on four wheels, Maruti now dreams of putting India on four wheels,’’ says Jagdish Khattar Managing Director of Maruti Udyog.
‘‘Maruti is an outstanding illustration of India’s success in a globally competitive industry. Its IPO has indeed created history. The retail response was unprecedented while the depth and quality of the institutional book was equally unmatched and rarely seen in Indian IPOs,’’ says Uday Kotak, Chairman of Kotak Investment Banking Company. Can merchant bankers and investors expect more strategic sale-cum-public offers now? Till Maruti IPO happened, most of the sell-offs were through the strategic route. This essentially means the government will ask suitable companies to put in their bids and will then select a winner from them. This stake is offloaded to this bidder. Using this route, the government sold its stake in Bharat Aluminium (BALCO) to Sterlite, Indian Petrochemical Corporation (IPCL) to the Ambanis and Videsh Sanchar Nigam Ltd (VSNL) and CMC to the Tatas.
‘‘But retail investors who are saddled with dud stocks and huge losses in the three years were not given a chance to participate in the disinvestment process. But the Maruti disinvestment has proved that retail investors are ready to support the process if they are given a chance. This might have prompted the government to offload the balance stake in IPCL, VSNL and CMC to retail investors,’’ said Pradip Bhavnani, president of National Association of Small Investors.
The scenario on the divestment front has changed overnight. The government has plans to disinvest from a host of companies — mostly monoliths with monopoly in various industry segments like telecom and power. ‘‘I agree that a partner with deep pockets and expertise is necessary in all companies. But along with this, the government should also think of selling part of the shares to retail investors. This will give a new lease of life to the primary market,’’ Bhavnani said.
The IPO route to disinvestment finds favour with many such as Prithvi Haldea of Prime Database. ‘‘We have been urging the government to at least partly use the IPO route for disinvestment and the line-up suggests a move in this direction,’’ he says.
The PSU IPOs coming to the rescue of the market could include Indian Oil (Rs 1,500 crore IPO), BPCL (Rs 3,500 crore) and a host of others like NTPC, NHPC and Nalco.
However, many Dalal Street veterans feel the government’s sell-off drive is confusing. It initially sold many companies like IPCL and VSNL to strategic investors. But in some cases like Bharat Petroleum and Dredging Corporation, the government is selling off through the IPO route.
Many dismiss the government policy on disinvestment as purely ad hoc. ‘‘Ideally, the government should have invited a private partner and offered shares to public at the same time. For example, VSNL’s prices have crashed since it was privatised,’’ says Venkat Aiyar, a BSE dealer. Now, he feels, the government will lose money if they sell the remaining shares to the public.
After years of hibernation, the Maruti initial public offering (IPO) of shares has given them returns which were till recently unimaginable in a falling interest rate regime.
On the other hand, the Maruti IPO also opens up a non-controversial route to sell government companies that are due for sale later this year. A route that will benefit retail investors directly and was earlier traversed by former British Prime Minister Margaret Thatcher. Advocating improving efficiency and encouraging employees to be shareholders within their own firms, Thatcher’s privatisation programme had raised huge sums of cash (£2.5 billion between 1985 and 1986) and another £4.7 billion in the following three years. By 1987 Thatcher had sold off 17 major institutions to those in the general public who could afford to buy shares.
India can repeat the UK experience. ‘‘The stock markets are buoyant and reached a 16-month high riding the Maruti IPO wave. This is one of those disinvestment success stories which the government was waiting for to sell privatisation to the voters of this country in the next election,’’ says Pawan Dharnidharka, a BSE stock broker. Since the government started its disinvestment journey it met resistance from almost all quarters. From ministers within the government to union leaders, and employees of the companies on the disinvestment list, the mood was more of suspicion than of embracing privatisation for the long term welfare of the companies.
And then came the Maruti’s privatisation which brought over Rs 2,000 crore to the government of India’s kitty. In fact, the response to the Maruti IPO took even the Indian government by surprise mainly because it turned out to be the country’s largest book-built transaction in the capital market’s history, receiving bids valued at over Rs 10,000 crore.
This resulted in an unprecedented retail response of nearly 300,000 investors, the highest number ever in an IPO through book building. ‘‘With a public issue oversubscribed more than ten times, we are aware of the special place we have in this market and in this country from putting the middle class on four wheels, Maruti now dreams of putting India on four wheels,’’ says Jagdish Khattar Managing Director of Maruti Udyog.
‘‘Maruti is an outstanding illustration of India’s success in a globally competitive industry. Its IPO has indeed created history. The retail response was unprecedented while the depth and quality of the institutional book was equally unmatched and rarely seen in Indian IPOs,’’ says Uday Kotak, Chairman of Kotak Investment Banking Company. Can merchant bankers and investors expect more strategic sale-cum-public offers now? Till Maruti IPO happened, most of the sell-offs were through the strategic route. This essentially means the government will ask suitable companies to put in their bids and will then select a winner from them. This stake is offloaded to this bidder. Using this route, the government sold its stake in Bharat Aluminium (BALCO) to Sterlite, Indian Petrochemical Corporation (IPCL) to the Ambanis and Videsh Sanchar Nigam Ltd (VSNL) and CMC to the Tatas.
‘‘But retail investors who are saddled with dud stocks and huge losses in the three years were not given a chance to participate in the disinvestment process. But the Maruti disinvestment has proved that retail investors are ready to support the process if they are given a chance. This might have prompted the government to offload the balance stake in IPCL, VSNL and CMC to retail investors,’’ said Pradip Bhavnani, president of National Association of Small Investors.
The scenario on the divestment front has changed overnight. The government has plans to disinvest from a host of companies — mostly monoliths with monopoly in various industry segments like telecom and power. ‘‘I agree that a partner with deep pockets and expertise is necessary in all companies. But along with this, the government should also think of selling part of the shares to retail investors. This will give a new lease of life to the primary market,’’ Bhavnani said.
The IPO route to disinvestment finds favour with many such as Prithvi Haldea of Prime Database. ‘‘We have been urging the government to at least partly use the IPO route for disinvestment and the line-up suggests a move in this direction,’’ he says.
The PSU IPOs coming to the rescue of the market could include Indian Oil (Rs 1,500 crore IPO), BPCL (Rs 3,500 crore) and a host of others like NTPC, NHPC and Nalco.
However, many Dalal Street veterans feel the government’s sell-off drive is confusing. It initially sold many companies like IPCL and VSNL to strategic investors. But in some cases like Bharat Petroleum and Dredging Corporation, the government is selling off through the IPO route.
Many dismiss the government policy on disinvestment as purely ad hoc. ‘‘Ideally, the government should have invited a private partner and offered shares to public at the same time. For example, VSNL’s prices have crashed since it was privatised,’’ says Venkat Aiyar, a BSE dealer. Now, he feels, the government will lose money if they sell the remaining shares to the public.