The Hindu Business Line : Discount sale

THE PUBLIC OFFER of Punjab National Bank, which managed to raise as much as Rs 3,100 crore, may appear to have satisfied the bank's principal constituents. For instance, the Government as the principal shareholder may consider itself richer by the Rs 1,000 crore it has got from the sale proceeds and new investors too may be delighted that they have gained shares at a discount. The bank too is now armed with the funds needed to fuel growth and combat regulatory changes. But the process could have been managed more efficiently from the perspective of the general public and Indian minority shareholders, in particular.

First, Punjab National Bank surprised everyone by announcing a discount of more than 10 per cent to the market price. When both Punjab National Bank and Allahabad Bank announced that they would raise capital through the book-building route, the expectation was that there would be no mispricing. Since the book-building route allows an issuer of capital to ascertain the demand at various price levels, it follows that the management is committed to ensuring that the price eventually fixed for the issue optimises the need for funds and the number of shares to be issued to sustain a capital infusion programme. In other words, the decision seemed to signal to the market that the days of public sector banks under-pricing their shares were over. But with the bank fixing the price band well below the current market price, the flexibility that a `book-built' issue of capital offers has been frittered away. Since the Government will also get only Rs 390 per share for the equity it will surrender, it has lost the opportunity to raise additional resources for social and economic development programmes.

As the promoter, the Government has also failed in its fiduciary duty towards other public shareholders, who have now ended up cross-subsidising, among others, the foreign investors who have subscribed to the current issue. With Punjab National Bank having set such a benchmark it may well be difficult for other public sector banks to align their offerings with the market price. That apart, the bank has placed itself at a disadvantage vis-à-vis such private sector banks as HDFC Bank, ICICI Bank and UTI Bank which seldom issue fresh shares at such discounted prices. These banks are able to compete more aggressively in the market place as they have fewer shares to service for the amount of capital deployed in the business. The Government perhaps was conscious of the fact that its reformist credentials among the global investment community are suspect, at least insofar as the financial sector is concerned. It might have wanted to convey to this section that perceptions notwithstanding, there exists a huge appetite for public sector bank stocks. It may well have achieved that as the overwhelming response to the public offer suggests that this is indeed so.

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