Mumbai: The finance ministry’s disinvestment department has lifted a curb on investment banks (i-banks) handling its asset disposal programme if they had capital-raising mandates from non-state companies in similar sectors, after the move led to a waning of interest in public sector share sales.
The conflict-of-interest restriction has been lifted, said four officials, including one from the finance ministry. Bankers without any experience in handling share sales in the relevant sectors are also being invited to manage government issues, they said on condition of anonymity.
The finance ministry official played down the development, saying the government wanted bankers to disclose the details of all their assignments from the private sector, and there was no plan as such to ban them. “We want to avoid conflict of interest, but that is a part of the overall selection criteria,” he said.
The government, which has consistently missed goals on asset sales, needs to ensure that it raises the sum budgeted to help meet the deficit target as mandated under the Fiscal Responsibility and Budget Management Act.
The change was forced on the government as few investment bankers were seeking disinvestment mandates because of stringent selection norms and near-zero commissions, the officials cited above said.
The finance ministry imposed the barrier in February as bankers to the divestment in state-run Steel Authority of India Ltd (SAIL) were also found to be handling the follow-on public offer (FPO) of rival Tata Steel Ltd simultaneously.
The government plans to raise around Rs 40,000 crore by selling stakes in at least seven companies in the current fiscal year—SAIL, Hindustan Copper Ltd, Power Finance Corp. Ltd (PFC), Oil and Natural Gas Corp. Ltd (ONGC), Rashtriya Ispat Nigam Ltd (RINL), Bharat Heavy Electricals Ltd and National Buildings Construction Corp. Ltd (NBCC).
So far, the government has raised Rs 1,144.55 crore through a FPO of PFC, which means it has about seven months to raise the rest amid volatile market conditions. ONGC’s follow-on offering, which seeks to raise about Rs 11,000 crore, is expected to open on 20 September.
“In the forthcoming issues of SAIL and NBCC, the ministry has accepted and selected bids from bankers who are simultaneously handling floats by private firms in similar sectors,” said one of the bankers appointed for the FPO of SAIL.
Previously, bankers were keen on asset sales because of the size of the floats and the higher league table rankings that would accrue as a result, even though the fees were low compared with mandates in the private sector. The charm wore off once the restriction was put in place.
“With issuances like SAIL taking a year to be executed (due to poor market conditions), no bank is ready to bleed by not taking private assignments,” said an investment banker. “In a market where revenues have been dwindling, league tables don’t matter.”
The finance ministry announced the banks mandated to execute the initial public offering of RINL on Wednesday—IDBI Capital Market Services Ltd, IDFC Capital Ltd and UBS Securities India Pvt. Ltd. Only five i-banks had participated in the bidding. Edelweiss Capital Ltd and Deutsche Equities India Pvt. Ltd were the other two bidders.
That was less than half the norm, which is a dozen bidders, said a banker, who declined to be identified.
The department is now restraining itself to asking bankers to disclose same-sector assignments, another investment banker said. This is evident in the document inviting bankers to handle the RINL issue. The government has asked book-running lead managers to keep it informed of other private sector assignments they undertake.
According Dealogic Plc, which tracks investment banking, in the eight months ended August, investment banking revenue in India fell 22.91% to $407 million (Rs 1,890 crore today) on the back of a 53.65% drop in equity deal volumes, a 14.39% decline in debt deal volumes, and a 51.04% slump in mergers and acquisitions deal volume from the year earlier.