Scripting a success

The Government’s public sector divestment programme seems to have finally taken off, with its 10 per cent stake sale in Oil India Ltd (OIL) attracting bids for over two times the shares on offer. The good part is that a fair bit of the response came from genuine investors, rather than the usual proxies of the Government — especially the Life Insurance Corporation, which had bailed out past divestment offers by stepping in as ‘buyer of last resort’. The success of the OIL offer-for-sale was no less the result of the Government’s pragmatism in pricing it reasonably, even if at a discount to the market price, to attract investors. There has also been a distinct change in the divestment strategy of late. The focus is now more on pushing through quick offers for small lots of shares, as opposed to big-ticket issues, announced much in advance. This strategy has helped avoid any bear-hammering of shares in the run-up to the offer.

The oversubscription to the OIL stake sale was also helped by the overall improved market sentiment. The 30 per cent rally in the secondary markets in the last one year, besides decent returns from the initial public offers (IPO) made in 2012, have stoked the investor appetite for good new issues. As a result, the primary market, too, has received a fillip, even though retail participation might still be limited. This is also borne out by the success of India’s largest ever Qualified Institutional Placement offer by Axis Bank last week, mopping up over Rs 4,700 crore. The same route — wherein companies issue shares to select institutional investors such as pension funds or insurance firms, as against IPOs that require minimum retail subscription — was also employed by the likes of Jaiprakash Associates and PI Industries to raise smaller sums.

Positive as all these may be, the Government should, however, avoid the temptation to line up a string of public sector share sales to somehow balance its books before the Budget. The recent primary market revival is, in any case, restricted to only select sectors: Companies with cyclical earnings and leverage problems or distressed businesses such as public sector banks and aviation are unlikely to find ready takers today. Secondly, with the June 2013 deadline for the SEBI’s minimum 25 per cent public shareholding norm approaching, the next few months may see a mad scramble of offers by listed firms to comply with this requirement. With such a large supply of paper hitting the markets, pricing will be under pressure. There is no compelling reason for the Government to jostle with this crowd. Given the cash-rich, uniquely-placed companies under its ownership, the Government could do well to phase its divestment in a manner fetching the best possible return for the exchequer. The current strategy of executing quick small-stake offers and spreading it through the year is the best way for that.

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