With a number of PSU biggies slated to tap the markets in the coming months, the government has started consulting markets regulator Sebi and investment bankers on the viability of taking the French auction route for the stake sales and also the possibility of tweaking certain norms in the method for this purpose. While all the follow-on public offers in the current fiscal are likely to be through the traditional book-building process for price discovery, the government is keen on Coal India taking the French auction method for listing, official sources told FE.
In the French auction method, investors bid for shares above a certain floor price and bidders will be allotted shares starting from highest bid till the shares on the block is exhausted. In the traditional book-building process, investors bid within a price bank and every bidder is offered shares at a cut-off price.
In a written reply to an FE questionnaire, the disinvestment department said that government is open to using French auction method in listing of companies also while the final decision will be taken on a case-to-case basis. ?Experts suggest that the French auction method is more suited for the initial public offerings. But before taking a final call on the price discovery mechanism to be followed in case of Coal India, we need clarity on certain aspects,? said a finance ministry official. Coal India, Hindustan Copper, Engineers India and Power Grid are among the larger firms in this year’s list for disinvestment.
Price discovery mechanism for listing the mining major gathers significance as government depends on it to mobilise more than one fourth of the ambitious target of Rs 40,000 crore.
?Rather than French auction method, it was the volatility in the markets that played the spoilsport in the previous FPOs. We do believe that French auction leads to maximisation of price realisation,? said a senior executive of one of the investment banks who won the bid to manage the issue. Earlier, in the last financial year, the disinvestment department had not found much success with the French auction in the follow-on offers of NTPC and REC.
Sebi had earlier turned down government?s request to suspend trading in the scrips of a company while it tap the markets so that the price discovery mechanism will be insulated from volatility in the markets. Demand for suspension of derivatives trading in the company was favoured by the markets regulator.