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The Coal India offer-for-sale (OFS) that sailed through despite its gargantuan size will have many in the Finance Ministry patting themselves on the back. But retail response to the offer indicates that it could have been designed in a manner more friendly to the aam investor.
Many small investors logging in to punch their bids on Friday morning were surprised to find that they did not have the option to bid at the cut-off price, the lowest rate at which the entire offer gets sold. Bidding at the cut-off price ensures allotment and most investors use this option while subscribing to initial- and follow-on public offers. In case of over-subscription, those bidding at cut-off price are allotted shares on a proportional basis. The absence of this option was surprising because market regulator SEBI had modified the OFS guidelines in December, giving the seller the option to offer shares at cut-off price. Many investors might have been perplexed trying to zero-in on the right price to bid at; and might have decided not to apply.
Since the government had made it obvious that it wants to increase retail stake in the company by setting aside 20 per cent of the offer as the retail portion, instead of the mandated 10 per cent, it could have gone the extra mile in offering bidding at cut-off price too. Other retail investors may have stayed away due to the requirement that they had to pay the entire bid amount up-front. Not many can arrange to have the cash in their banks at such a short notice since the offer is announced just two days before the issue and the floor price on the eve of the issue.
There are many reasons why retail investors should have lapped up the issue. One, the government was offering them 5 per cent discount, below the bid price. Two, the fundamental prospects of the company are sound with enviable profit margins, a large cash hoard, good dividend yield and clear-cut expansion plans. That the retail portion was subscribed only 44 per cent despite these positives means that the government needs to pay more attention to the needs of the small investor in its future offers.
Deputy Editor and Head of Research
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