In a related development, Mahanagar Telephone Nigam Ltd (MTNL) is proposing to launch simultaneous issues of global depository receipts (GDR) and domestic equity. Goldman Sachs and Merrill Lynch are being appointed the global coordinating agencies for the issues, sources said.

The Government is divesting 5 per cent of its 56 per cent stake in MTNL, out of which the company intends to issue 19 million shares through the GDR float.

With the retail price of the monopoly international telecom operator being fixed at Rs 750, the Government is effectively selling its shares at a discount of nearly 30 per cent to the Bombay Stock Exchange (BSE) closing price of Rs 1,103. The Government will garnerRs 75 crore through the VSNL issue.

The core group of secretaries on Monday cleared the sale of one million shares of VSNL, 1.7 million shares of Gas Authority of India Ltd (Gail) and 38.8 million shares of Indian Oil Corporation (IOC). While Gail will go for a GDR issue, the IOC disinvestment will be through a GDR-cum-domestic float.

The company had earlier intended to tap the market by August 24 but was forced to defer the issue as the matter was referred to the Election Commission as the code of conduct had come into force. But the EC cleared the issue as the cabinet decision was taken before the code of conduct came into effect.

The retail issue will kick off the Government's disinvestment process which intends to mop up Rs 10,000 crore in the current fiscal year. The VSNL issue will be followed by MTNL, Gail and Indian Oil Corporation.

Merchant banking sources said that given the state of the primary equity market where the Polaris Software issue was oversubscribed nine times, the VSNL issue at apremium of Rs 740 should go through. "The conditions in the market should hold for another three weeks," a source said. The merchant bankers to the issue, SBI Capital Markets and Kotak Mahindra, have already filed the prospectus with the Securities and Exchange Board of India (Sebi) on June 24. But the price band was not disclosed. "We will file the price with Sebi and get all the necessary approvals as soon as possible," a source familiar with the issue said.

Officials said that there will be no reservation for banks and financial institutions as it is a pure retail issue where more than 50 per cent of the issue needs to be subscribed to by small investors. An applicant for less than 1,000 shares is called a retail investor in accordance with Sebi rules. The centre has already offered VSNL employees shares of the company at a highly discounted price.

Insight

The pricing of the Government's divestment in VSNL in the GDR market vis-a-vis the domestic market reflects the pricing dichotomy betweenthe two markets.

While the GDR float was made at a premium to the then ruling market price, the domestic issue is being made at a very steep discount to the present market price. The Government is facing the same situation while divesting a part of its stake in MTNL. Thus, it would make more sense for the Government to focus only on the GDR market and get a higher price than what the domestic market can offer.

Aaron Chaze