Mumbai: Disinvestment secretary Sumit Bose has ruled out any change in the bidding norms for investment bankers despite widespread criticism on bankers bagging mandates for near-zero fees.
The government had sometime ago changed the norm for awarding float mandates to zero-fee bidders. Bose is overseeing the largest ever public sector share sale programme as the government plans to raise Rs 40,000 crore from the market. Till now only 5% of this amount has been raised through an initial public offer (IPO) of SJVN Ltd and a follow-on offer (FPO) of Engineers India Ltd but Bose is confident of meeting the target. In an email interview last week, he spoke about the challenges. Edited excerpts:
The Coal India Ltd issue needs considerable support from retail investors. How are you planning to attract them?
Broad-basing ownership of public sector enterprises is a major goal of our disinvestment policy. All our issues carry a pre-announced discount of 5% for retail investors and employees. Further, the department has been reaching out to the retail investors through investor associations and to the brokers across the country. We have held meetings in several cities, including Mumbai, Delhi, Kolkata, Jaipur, Chennai and Indore. The idea is to establish a constant dialogue with retail investors and the retail chain. The ministry of corporate affairs has also launched a massive investor education programme. The focus is clearly on the retail investor.
Are you planning any new incentive for investors and intermediaries to see through the issue?
A discount of 5% to the issue price is given for retail investors and employees. The department of divestment has a scheme to pay brokers a commission of 0.35% for retail and 0.15% for high networth individuals. We have made a further commitment that all brokers would be paid within a month of the closure of the issue for small floats, and within 45 days for large floats. After the EIL public issue, we have adhered to these deadlines.
Even after adopting the new bidding system for merchant bankers and abolishing the practice of quoting zero commissions, bankers continue to bid for near-zero commissions. This defeats the whole objective of changing rules. The capital market regulator was critical of this in a public speech.
Unlike earlier, where the selection was entirely on the fees quoted, the present process of appointment of book running lead managers is based on a combined score of technical competence and financial quotes. Technical capability gets 70% weightage and 30% weightage is kept for the financial bids. There is a cut-off score for the technical competence and the financial bids of only those bidders who are above this cut-off are considered for evaluation. This system in no way calls for zero or near-zero bids. We are getting the best of the domestic and international merchant bankers. Further, we keep a very close watch on the performance of our bankers. At the moment, we are not thinking of changing our system.
Apparently the merchant bankers have been sounded by the finance ministry to be prepared for raising Rs 40,000 crore by December-end. Do you see this happening, given the favourable market conditions?
I am not aware of any such move. The disinvestment target is up to the end of the fiscal and we are proceeding systematically towards this goal.
Any plan to revise the target?
The target for the current fiscal is Rs 40,000 crore and we are working according to our plan to reach this target.
Are you planning to use anchor investors for the Coal India issue?
The current government policy is not to go in for anchor investors. However, since anchor investors are provided for under Sebi (Securities and Exchange Board of India) regulations, the government always has the option to use such a provision. In the case of Coal India, considering all factors including the demand, we are unlikely to use this provision.
The proposed increase in limit for retail investors to Rs 2 lakh in public issues could be a big boost for large PSU public issues.
The limit of Rs 1 lakh for retail investor was fixed five years ago. The real value of this amount has reduced substantially over the years and an upward revision in this limit appears necessary. This was reflected in the discussion paper floated by Sebi. I am sure after considering the feedback received Sebi will now take an appropriate decision on the issue.
The inadequate number of independent directors has been delaying public issues of many PSUs. What steps have been taken to ensure that this does not hinder the government’s disinvestment programme?
The government has fast-tracked the appointment of independent directors. There has been no delay in public issues on this account.