Merchant bankers now have to meet accountability provisions

As the Department of Investment and Public Asset Management (DIPAM) begins selecting book running lead managers for stake sales in a number of public sector units, including NMDC Ltd and Cochin Shipyards, it has over the last one year introduced clear provisions to improve accountability of the selected merchant bankers.

The provisions, which include self-appraisal by the selected merchant bankers post the issue, regular updates on daily share prices of the firms to be disinvested and complete confidentiality, aim to improve the return from stake sales.

“There is normally a long shelf of PSUs that are ready to be disinvested. Once selected, the merchant bankers are expected to update the government on a daily basis to ensure good timing of the issue,” said a senior government official.

The provisions, which are based on DIPAM’s experience in successive stake sales, are included in the request for proposal that is issued by DIPAM for appointing merchant bankers for managing a PSU disinvestment.

“These were introduced last year to ensure best returns for disinvestment issues by working closely with the merchant bankers,” said an official familiar with the issue.

Within a week of being appointed, merchant bankers are expected to provide detailed strategy on investor awareness and interest.

This includes a list of domestic and international investors that will be approached for the offer for sale (OFS) and a plan for reaching out to the retail investors.

They are also expected regular updates on their plans as well as “advise DIPAM on the proper and optimum timing and best floor price for the OFS”.

Post-investor meetings, they have to submit book building of the investors with likely volume and likely price, apart from media management and publicity for the issue.

Further, within 10 days of the OFS closure, the bankers are also expected to submit a self appraisal on their plan of action, which will be “taken into consideration by DIPAM for future assignments”.

Officials point out that a lot of what was left unsaid but was expected out of merchant bankers has now been written in the RFP.

“Most of these provisions were always expected from the appointed bankers. Now, it is more of a formal system,” said a second official.

Experts agreed and said that these are expected of merchant bankers in any issue.

“These are innocuous but compulsory requirements and are anyways the responsibility of the bankers,” said Prithvi Haldea, Chairman, Prime Database Group.

However, he noted that the bigger issue is of low financial bidding, wherein merchant bankers bid to manage disinvestment issues at almost no price.

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