The government’s disinvestment calendar for this fiscal now has to offer one issue every month without fail to the investors. From the end of June till March 2012, there are eight companies which are scheduled to hit the market according to the government’s plans.
In a cash-strapped year where growth signals are weakening and the primary market weaker, the government has been boxed into a corner. The tight schedule means the government has little time to surprise the market with any attractive offer.
To surprise markets, the department has only one initial public issue in this fiscal. Except for National Buildings Construction Corporation (NBCC), all others are follow-on offers, meaning there can be little departure from the prevailing market price as the shares are already listed.
NBCC is a 50-year-old public sector unit under the Union urban development ministry, engaged in real estate, construction, and infrastructure development. The request of proposal of the issue has termed it as an realty/construction company as it includes both in its profile.
However, a senior top official of the divestment department said it has found that the potential investors have clubbed the construction company with real estate firms, which can seriously cripple the premium the government can set on the issue price. In the last 52 weeks, the BSE’s real estate index has lost 31.8% and has started crawling back only recently.
Timing the issue is a big problem for the department. To make the issue sail through, the government has split each share of NBCC with a face value of R1,000 into 10 shares worth R100 each.
The dull market means even as policy makers are assuring investors and public that they will comfortably meet the disinvestment target, experts are raising doubts that procedural issues too will make reaching the target quite difficult. This adds to its problems. Monday’s data from the finance ministry show the net direct tax collections have declined 48 % during the first two months of the current financial year to around R13,000 crore, compared to R24,878 crore in the same period of last year.
The department has set a target of R40,000 crore for 2011-12. Besides NBCC, the line- up includes ONGC, SAIL, Power Finance Corporation, Bharat Heavy Electricals Ltd and Hindustan Copper. Others include MMTC, Rashtriya Ispat Nigam Ltd and Indian Oil Corporation.
Sanjay Sinha, CEO of L&T Mutual Fund said the government is stretching it very thin.
Deven Choksey, MD of KR Choksey Securities said: ?By the time government gets through the cumbersome approvals, the market has already lost interest in the offer. The department seems to be promoting follow-on issues like debut issues, rather than looking for true valuation.?
Choksey also raises fundamental problem in marketing follow-on issues. The time-frame given for them is very small compared to the amount government is expecting to raise. Experts believe that the duration for which the issue is open should be extended to realise the true value of the offer.
Officials said it generally takes two months to finalise merchant bankers for a issue. Given the time period of two weeks to invite applicants for book running lead managers, criteria for selecting bankers will have to be telescoped into the same period. It also includes another week given for the international road shows for promoting an issue.
Looking at the fact that FII inflows have not been much and retail investors have largely stayed away, it seems a difficult task. In equities, total net FII investment in 2011 so far has been $85 million, compared to $29.4 billion registered in 2010. Eight out of 12 disinvestment issues that hit the market in the last two years are trading below their issue price.