That the Commonwealth Development Corporation (CDC) has bagged the single largest holding in Punjab Tractors Ltd (PTL) makes it one of the most interesting disinvestment deals in recent times. PTL is one of the best managed and most ethical companies in the Indian market with an excellent track-record for many years until the recent downturn caused by drought and over-capacity. It has always been on the radar of Indias best-known fund managers and large chunks of its equity is held by institutional investors. It has an exceptional record of customer service, with a product quality that ensured a preference for its products and allowed it, until the recent onslaught of new competition, to operate with low inventory and working capital. If it does not have the same glamour as an Infosys Technologies, it is because of its public sector ownership and mundane products. CDC too has tracked PTLs performance for several years and already owned some equity in the company. Apart from CDC, Warburg Pincus and Newbridge Capital were among the 11 bidders who were once in the race to acquire the Punjab State Industrial Development Corporations 23.5 per cent stake. That CDC, a foreign institution was the highest bidder for PTL, is an interesting development. Unlike PTLs private sector competitors, CDC is not focussed on taking over management or acquiring strategic control over its assets. Also, the fact that it may be exempt from having to make an open offer to retail investors for another 20 per cent of PTL shares, will allow it to bag a majority stake with just half the financial outgo that other bidders would incur. This combination of factors probably allowed CDC to offer a higher price for the shares than the competition. CDC is most likely to allow PTL the independence to deliver results with minimal interference. The acquisition of PTL also gives it a 34 and 29 per cent stake, respectively, in two good associate companies Swaraj Mazda and Swaraj Engines and the scope for developing those businesses further. Moreover, the CDC connection will also help it source technology and strategic partners more easily, if the need arises.
Why then has the market reacted with a Rs 22 drop in the price on the news of CDCs win First, because several investors may have been driving up the price on the basis of false expectations raised by the media that an open offer was in the offing. And secondly, because disgruntled competitors without the resources to bid for PTL are hoping to create controversy by alleging that the disinvestment process itself was flawed.