Government gearing up for stake sale in HAL, IRCTC via Offer for Sale’ route

Two ‘Offers for Sale’ (OFS) to offload part of government’s stake in Hindustan Aeronautical Limited (HAL) and Indian Railway Catering and Tourism Corporation (IRCTC) will hit the market soon.

Stake sale in HAL is expected to take place this month itself, while the government has invited bids for appointment of Merchant Bankers and Selling Brokers to help in OFS of IRCTC. Interestingly, the process to divest part of government’s stake was initiated in January this year, but could not be completed due to market conditions and then spread of Covid-19 . Now, with the market going up, the government hopes to get the much-needed revenue.

An OFS through stock exchanges is a simple and convenient way for promoters to divest their shareholdings in a publicly-listed company. It is for top 200 companies (in terms of market capitalisation). It involves very limited paperwork and the process can be completed in a week or so. The company has to inform the stock exchanges at least two days before the OFS. SEBI has mandated that at least 25 per cent of shares in an OFS must be reserved for mutual fund and insurance companies. In addition, a 10% reservation is made for retail buyers.

HAL

As on date, the government holds 89.97 per cent shares in HAL. Originally, the plan was to divest 15 per cent holding. Based on Wednesday’s closing price of on BSE, this could give over ₹6,300 crore. However, there is buzz in the market that only 5 per cent to be offered under OFS, which means Government could get over ₹2,100 crore based on the current price. 15 per cent stake sale will also help the company to achieve Minimum Public Shareholding norms of 75 per cent, but considering current market situation 5 per cent could be a better idea.

IRCTC

Bids for appointment of Merchant Bankers and Selling Brokers can be submitted between September 4 and September 10 after pre bid meeting on September 03. Bids will be opened on September 11. Bidders should have handled and completed at least one domestic equity issue (Initial Public Offering or Further Public Offering or OFS) of the size of ₹1,000 crore or more during the period from April 1, 2017 to June 30, 2020.

The government has not mentioned how much stake to be sold. It just mentioned ‘intention to disinvest a part of the paid-up equity capital of IRCTC. It is also considering allotting shares to eligible and willing employees of IRCTC at a discount to the Issue/ discovered price (lowest cut off price) up to a maximum of certain percentage of the OFS size subsequent to completion of the transaction under OFS. The percentage and extent shall be decided in due course. Merchant bankers / Selling Brokers will be required to render such assistance as may be required in this connection.

The government holds 87.40 per cent in IRCTC. Even 5 per cent stake sale will fetch over ₹1,000 crore at current market price.