The Hindu Business Line : Bluechip merchant bankers, really?

THE SELLING OF government's shares in some of India's top companies has been a daunting task. In the latest effort, the IBP issue receiving negligible response in the first three days was unanticipated but overcome with the Government leaning on merchant bankers and warning a bear cartel against manipulating the market. The IBP issue was oversubscribed but not overwhelmingly. No better received were the more-fancied offers of CMC and IPCL. These two companies, once in the public sector, are now under the control of the Tatas and Reliance respectively following an earlier strategic sale by the government. However, the expected premium from this factor did not materialise.

For public offerings as fancied as these, success is not whether they are subscribed but by how many times. Admittedly, that commonly accepted market yardstick could not be applied to the bunched-up divestment-driven offers. It is likely that the Government had other goals in its mind — meeting the fiscal target before March 31, for instance. Yet, the public display of anxiety initially by the Disinvestment Minister, Mr Arun Shourie, suggests a lacuna in the waythe marketing of such large offers was structured and executed. Should there not be an evaluation of merchant bankers, those crucial intermediaries in any capital issue?

The merchant banking scene, once thickly populated, is now dominated by a handful of large firms. Almost all are either foreign owned or have overseas tie-ups, and are powerful to boot; even for the domestic sale of government stock they have managed to win the investment banking mandates. Public sector merchant bankers, having historical links with these companies, have not made any impact except in the case of Power Trading Corporation's much smaller issue. Given that to win such impressive mandates, a merchant banker has to prove its credentials, it is likely that the less glamorous public sector banks did not have a chance. Yet, as the initial hiccups suggest, the execution of the mandate left much to be desired. Probably the Government did not get the correct advice on either the timing or the sequencing of the issues; for, even bluechip issues need some `grooming' on intrinsic merits. And even if the merchant bankers' advice was ignored, there has been a question mark over the efforts at collecting subscription.

Two instances illustrate the unimaginative strategy. IBP's floor price at Rs 620 appeared high but is less than half of what Indian Oil paid to take control of the company. Retail investors could have been made to feel that they are buying a bluechip at a bargain. Ill-timed also was the news that Reliance declined (in the interest of widespread shareholding) an offer of a 5 per cent block of shares in IPCL; this unintentionally reflected poorly on the share issue. In both the cases the merchant bankers could have advised better. Ultimately, it is a question of merchant bankers, the big-names included, being made aware of their onerous tasks even in managing bluechip issues.

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