The Government has fixed floor price of Rs 315 for selling over 4.93 crore shares of Rural Electrification Corporation (REC) on Wednesday. With this disinvestment process for fiscal 2015-16 will kick off.

The floor price is nearly two per cent lower than the closing price of Rs 321.65 on Tuesday. The share closed with over 4 per cent loss at BSE. Post disinvestment, Government’s shareholding will come down to 60.64 per cent from 65.64 per cent.

Shares will be sold through Offer for Sale (OFS) mechanism. Under such a mechanism, bid can be placed during trading hours (9.15 am to 3.30 pm). Bid can be placed at or above the floor price. Auction method is different from more popular methods such as Follow on Public Offer (FPO). However, FPO is considered to be a time taking and costly affairs. At the same time, not much documentation required under OFS and the time to complete the entire process could be as less as one week.

The retail investors will get not just 5 per cent discount but also have 20 per cent reservation in total shares offered. Retail investor means an individual investor who places bids for shares of total value of not more than Rs 2 lakhs. Such an investor will have two options to participate. If an investor has online facility from his broker, he can apply there. Those having no such facility will need to approach a broker who will place bids on special window of stock exchanges.

For these investors, entire 100 per of bid value needs to be deposited up front. However, there is an option, if the retail investor does not have required cash, then his broker (clearing member) can place cash equivalent such as bank guarantee or fixed deposit with the clearing corporation and settlement will be done accordingly. The investor can later settle his financial obligation with his brokers. Retail investors will be allocated shares at a discount to the bid price. The discounted price of the final allocation price may be below the floor price

Non institutional investors such as Banks, Mutual Funds and others are not required to deposit the bid value upfront just like retail investor. Based on the bids, two cut off prices will be determined, one for retail and one for institutional investors. Non retail investors will get shares at a price which is at or above the floor price.

The Government has set a target of Rs 41,000 crore through selling minority stakes and Rs 28,500 crore through strategic sell (parting with ownership) in Central Public Enterprises (CPSEs). Unlike last year, when disinvestment process started as late as in December, this year, the process is taking off in the fist year of the fiscal year itself. Now, it is expected that disinvestment will take place on a regular basis through out the year.

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