The Export-Import Bank of India (Exim Bank) and Corporation Bank, with bids of Rs850 a share, have emerged as the top bidders for the government’s residual 10.27% stake in Maruti Udyog Ltd, the country’s largest car maker, said top government officials who did not wish to be identified.
The government could raise between Rs 2,250 crore and Rs2,500 crore through the sale, which will be closed on Thursday after an empowered group of ministers approves the financial bids.
The Centre had restricted bidding to banks and some other financial institutions, and the interest shown by Exim Bank, Corporation Bank and around 34 other firms that bid for the stake would appear to be motivated by financial objectives. Exim Bank isn’t a commercial bank, but an export and import finance and facilitation firm.
The banks’ bids are a 14.2% discount to the scrip’s 52- week high of Rs991.40 per share and also lower than Rs879.20, the closing price on the day the government called for bids to sell its stake in the company. But the amount is higher than the Wednesday’s closing of Rs802.85 on the Bombay Stock Exchange, up Rs2.40 or 0.3% from its Tuesday’s close.
In the last week of April, the government had set a floor price of Rs760 per share for its stake in Maruti, its joint venture with Japan’s Suzuki Motor Co. The Japanese firm owns a 54.2% stake in the company.
A finance ministry official, who did not wish to be identified, said 36 insurance companies and public-sector banks such as the Life Insurance Corporation of India and State Bank of India bid for shares in the auto maker. The official said bids for 35.9 million shares were received compared with the 26.9 million shares on offer. The highest bidders will get priority in allotment of shares, he added.
At Rs802.85 a share, the price-earnings multiple, a common measure for valuing companies, stands at 13.22 (assuming an earnings per share or EPS of Rs60.475 for 2007-08, the average estimate of five analysts polled by Mint). At its 52-week high, the ratio, which looks at the share price as a multiple of EPS, stood at 16.39.
However, analysts said too much shouldn’t be read into the bid valuations.
“If any investor wants to buy such a huge chunk, it is not possible to buy it in the open market without significant price movement,” said Huzaifa A. Suratwala, an analyst with Emkay Share & Stock Brokers Ltd, a Mumbai-based broking company.
Maruti shares being sold by the government through the current round of disinvestment are not subject to a lock-in; they can be sold freely. The government had asked the bidders to make sure that their aggregate holding in Maruti did not exceed 10% of the company’s equity. According to the latest data available on the BSE website, LIC holds a 8.78% stake in Maruti. Other mutual funds and banks collectively hold a 15.28% equity.
The money raised from the sale will go to the National Investment Fund, which the government has set up to finance social-sector programmes. In the 15 years since economic reforms began, the government has raised Rs49,214 crore by selling stakes in various state-owned companies, from bread maker Modern Food Industries Ltd to telecom company Videsh Sanchar Nigam Ltd.
This stake sale will see the government exiting the JV, which was formed in 1981.
This is the second time in two years that the government is selling a stake in Maruti. In January 2006, it raised Rs1,567 crore by selling an 8% stake at a 12.3% premium to the average price of the preceding three months. In 2003, the government had netted Rs993 crore when it sold 27.5% of its stake to the public at Rs125 a share when Maruti was listed on the bourses.
SBI Capital Markets Ltd and Kotak Mahindra Capital Co. Ltd are advisers for the government’s stake sale.
Moving with Maruti (Graphic)