SAIL FPO: 4 investment banks under fire for taking up another job

SAIL FPO: 4 investment banks under fire for taking up another job

New Delhi: Four investment banks, SBI Caps, Kotak Mahindra, Deutsche Bank and HSBC, have come under fire from the government for taking up the job to manage the Tata Steel’s follow-on public offer (FPO) when they were assigned to do similar work for state-run SAIL.

Terming the action of these banks as “unethical", steel minister Virbhadra Singh said, “Yes, we are unhappy about it. I don’t know if they can do like this? Certainly, this is unethical".

Indicating that the government is contemplating action against the said banks as they had first got the job from SAIL, Singh told reporters here on Monday that “if it entails changing the merchant bankers, there will be some delay (in SAIL FPO)".

“We engaged them (the merchant bankers) first ... Why Tatas chose to come on same time with same merchant bankers is for them to explain, it is for the banks to explain," the steel minister said, adding that SAIL chairman, steel ministry and Department of Disinvestment are associated with it (the issue)".

However, Tata Steel disagreed with the view of the steel minister.

“That’s what he (steel minister) said ... As far as my view is concerned, it is up to the bankers to decide," Tata Steel director Jamshed J. Irani told the news agency.

Meanwhile, a senior government official confirmed that notices have been sent to the banks, adding that “It is purely conflict of interests. They have been asked to reply in next 2-3 days and then we will take a decision in this regard (whether to change the merchant bankers for SAIL FPO)".

In September, 2010, SAIL had appointed six bankers -- SBI Caps, Kotak Mahindra, Deutsche Bank, HSBC, JPMorgan and Enam Securities -- to manage its proposed Rs8,000 crore FPO.

The FPO is expected to hit the capital markets in mid-February.

When asked how same merchant bankers are managing the issue of two largest domestic steel companies, SAIL chairman C. S. Verma, however, refused to join the issue.

“That you ask Tata Steel ... I can not comment on this issue," he said.

When asked that whether there could be any delay in launching the FPO due to the issue, Verma said that “We have said it will be middle of February and we maintain the same timeline".

"We are likely to finalise the draft prospectus by month-end. Then we will make a review of the market conditions and will launch the issue at an appropriate time," Verma added.

The government plans to raise the money in two tranches from the disinvestment of SAIL. While in first tranche, which is expected to garner Rs8,000 crore, the government will offload its 5% of its equity in the company and SAIL would issue similar number of fresh shares.

On the other hand, the Tata Steel FPO will hit the capital markets between 19 to 21 January and is expected to fetch Rs3,385 crore to Rs3,477 crore at a price band of Rs594 to Rs610 per share.

The company, which has a net debt of $10.7 billion, had taken its Board nod in November to raise up to Rs7,000 crore through various instruments. Subsequently, on 24 December, the company secured shareholders nod to raise a maximum of Rs5,000 crore.

To manage the issue, Tata Steel has appointed seven banks -- Kotak Mahindra Bank, Citi Bank, Deutsche Bank AG, Royal Bank of Scotland Plc, SBI Capital Markets, Standard Chartered Bank Plc and HSBC Bank.