Stake sales in public sector units typically get thwarted by the ministers in charge of those PSUs or leaders with a stronghold in regions where the PSU?s main operations are ? for fear of losing turf. The stake sale of RITES Limited, the technical wing of the Indian Railways, is an unusual case.
Though the idea to sell part of the government stake in the company was scotched by the NDA?s railways minister Nitish Kumar, UPA?s Lalu Prasad revived the idea on his own and prodded RITES as well as the rest of the government machinery into action. Yet, the public issue of RITES that was expected to be launched by now is held up as the government hasn?t managed to fix a price band for the sale of shares. A group of ministers (GoM) headed by finance minister P Chidambaram set up to fix the price band for the IPO, was scheduled to meet over the weekend, but the meeting had to be postponed for a later date. If the price band is not decided suitably ahead of June 30, the public issue will be further delayed.
This is because RITES will have to revalidate its financial results, for the quarter ended March 2008, and seek a fresh approval from the stock market regulator, an official said. A draft red herring prospectus had been filed by RITES with the Securities and Exchange Board of India (SEBI) for the IPO in April. As a norm, once the price band is fixed, it takes a few weeks to complete the rest of the groundwork for a public issue such as printing forms and regulatory filings. Therefore, the GoM has to meet at the earliest so that the formalities for the issue can be rushed through to avoid rescheduling of the IPO.
RITES, which is entirely government owned, is expected to raise at least Rs 115 crore from its IPO of one crore shares to fund its projects. The government plans to divest 10% stake in the company by offering 40 lakh shares in the IPO. The sale of 1.4 crore shares will see 28% stake dilution by the government. The railway ministry?s subsidiary was supposed to hit the market in May after the Union Cabinet cleared the proposal for lowering the government holding in the company to 72%. The issue comprises a net issue to the public of up to 126,00,000 equity shares and a reservation of up to 14,00,000 equity shares for subscription by eligible employees. The shares are priced at Rs 10 each. While 50% of the net issue would be allotted to qualified institutional buyers (QIBs), 15% would be kept for non-institutional bidders and 35% for retail investors.
The book value of the shares was decided at Rs 115 and the offer price would be decided through the book building process. According to officials, the railway ministry, in consultation with investment bankers, is understood to have proposed to price the issue between Rs 175 and Rs 225 a share. At this price, the value of RITES would be around Rs 1,125 crore.
Back in 2002, the-then railways minister Nitish Kumar had opposed a recommendation of the then disinvestment commission under disinvestments minister Arun Shourie, which suggested giving 51% of the government equity in RITES as well as IRCON, the other PSU under the Railways. The railway ministry was opposed to the idea of offloading 51% stake in the blue-chip, knowledge-based company because once divested, induction of railway men into RITES would not be possible. Most of RITES?skilled personnel for rail-related consultancy projects typically come on deputation from the Railways. Furthermore, Kumar had said that the PSU was a profit-making and self-reliant entity.
Under the UPA government, with Kumar?s arch-rival Lalu Prasad at the helm, the railway ministry itself revived the idea of offloading government stake in RITES and wrote to the PSU for its response in 2006. However, the the ministry?s proposal for 10 per cent stake sale and an IPO for 28%, to fund mega projects including the freight corridor, was only cleared by the Union Cabinet in January 2008.