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Drumbeat: Ad Buzzaar
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Friday, June 26, 1998
A positive signal
The finance secretary's assurance that disinvestment targets will be met is a positive signal and needs to be followed up by concrete action. There will be no dearth of people who will carp and cavil at the timing of disinvestment decisions, and there will always be politically motivated accusations about the price of disinvestment. In any case, waiting for the markets to revive before disinvestment may well involve waiting out the entire fiscal year. It would be more practical, therefore, to try and revive the primary market by regaining the confidence of the small investor. Recent initial public offerings by banks have proved that good issues will have no difficulty getting subscribed. The proposal to earmark a portion of the issue for the small investor, by offering him shares at a discount, is in the right spirit. This will enable retail investors to sell their shares at a profit, helping to recoup at least some of the confidence lost. The success of this strategy has been amply brought out by thedivestment in the State Bank of India at a very low price, and the scrip has not only ruled much higher since then, but the floating stock has helped make the scrip one of the most traded. The experience could be replicated by several PSUs. This is the surest way by which the equity cult can be revived. At the same time, institutional investors will be offered shares through the book-building route. There have been several instances of share prices being hammered down in the secondary market prior to an issue, and the book-building process should ensure that the price paid by institutional investor for the shares is part of an auction process, and will more clearly reflect the intrinsic price of the share. As a matter of fact, banks and other financial institutions should be encouraged to subscribe to the PSU divestments, and they can then hold the shares till the markets revive. Since, in depressed markets, shares of even good companies are being quoted at very low price-earnings multiples, banks andfinancial institutions could make a tidy profit by offloading these shares at the appropriate time. All that should be ensured is that, in case of very large gains by the banks, a windfall gains tax could be levied. This arrangement will ensure that the government does not lose by selling its assets at a time when the capital markets are depressed. The decision for going in for a strategic sale is also correct. For companies in which the public appetite for shares is minimal, a sale to a strategic investor is the best option.Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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