SAIL FPO bother leads to rule change

Merchant bankers handling share issues of public sector undertakings will not be restricted from handling private sector issues in the same sector, but will have to make some disclosures while bidding for the former.

The new disclosure requirements will be applicable to PSU issues from now on.

"The conditions are not restrictive.

"These are minor conditions which will be included in the RFP (Request for Proposal). These will be more of reporting and disclosure in nature," Sumit Bose, Union disinvestment secretary, told Business Standard.

Bose was in Mumbai to launch the government's Rs 40,000-crore (Rs 400-billion) divestment programme for 2011-12 with the Rs 4,660-crore (Rs 46.6 billion) Power Finance Corporation follow-on public offer.

The new disclosure requirements would start with the RFP for National Building Construction Corporation Ltd, to be soon put up, he added.

The changes, Bose confirmed, were a sequel to the legal opinion sought after the seeming conflict of interest in the FPO of Steel Authority of India.

Four bankers handling the SAIL issue -- SBI Capital, Desutsche Equities, HSBC Securities and Kotak Mahindra -- were also engaged by SAIL's private sector competitor, Tata Steel Ltd, to manage its own FPO.

While Tata Steel successfully raised money in February, the SAIL FPO is yet to hit the market.

Bose said SAIL was a one-off case and was unlikely to be repeated in future.

Merchant bankers for PSU issues are selected through a bidding system by the department of disinvestment. Since the mandate typically goes to the lowest bidder, merchant bankers have been quoting near-zero fees to win the large PSU

mandates.

In private sector issues, the lead managers earn up to Rs 2-4 crore (Rs 20-40 million), depending on the size of the issue. 

This gave rise to concern that merchant banks had an interest in pushing through private sector issues ahead of PSU counterparts, jeopardising the government's money-raising plans.

The SAIL case was referred to the Attorney General.

After obtaining legal opinion, the bankers were required to give some undertaking, after which the issue is back on track. 

Bose said the SAIL FPO was likely to hit the market by June, followed by Oil and Natural Gas Corporation in July.

Bose said the selection of bankers was a transparent process. "Our interest is to get professional and efficient services from the bankers. We have already done 12 issues and we have also understood what kind of services we want from the book running lead managers. They have been delivering," he said

Last year, the divestment programme attracted a total of five million retail applications in six issues.

"The response to the government's plan for public ownership of PSUs has been very good. We have been directly interacting with people both in India and abroad and addressing the issues. We are happy with the response," said Bose.

Even foreign investors' response has been satisfactory, he said, at 17-70 per cent of the shares available for the Qualified Institutional Buyer category.