SAIL FPO may be delayed, govt questions biz ethics of 4 banks

SAIL FPO may be delayed, govt questions biz ethics of 4 banks

New Delhi: The government has questioned the business ethic of four leading investment banks for accepting the job of managing the public share sale of private firm Tata Steel when they have already been empanelled as BRLMs for state-owned SAIL’s FPO.

SBI Caps, Kotak Mahindra, Deutsche Bank and HSBC were hired as the book running lead managers (BRLMs) for SAIL’s follow-on public Offer (FPO) in September 2010, much before Tata Steel reached an agreement with the four banks to manage its over Rs3,000 crore FPO, scheduled to open from 19 January.

Terming the action of banks as “unethical", steel minister Virbhadra Singh indicated that the development may cause some delay for SAIL in hitting the capital market “if it entails changing the merchant bankers."

“We are unhappy about it. I don’t know if they (banks) can do like this. Certainly, this is unethical..," Singh told reporters at the global steel summit in New Delhi.

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

State-run Steel Authority of India had plans to raise Rs8,000 crore in the current fiscal by selling a 5% stake. The government will also sell an equal share in the first phase of the follow-on share sale, which was likely in February.

“We engaged them (the merchant bankers) first... Why Tatas chose to come on the same time with same merchant bankers is for them to explain, it is for the banks to explain," Singh said, adding that SAIL chairman CS Verma, the steel ministry and department of disinvestment are looking into 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 PTI.

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, which was likely to hit the capital market in mid-February.

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

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

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

"We are likely to finalize the draft prospectus by the 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 divest its stake in SAIL in two phases. The government will offload 5% of its stake in the first phase, while SAIL will issue an equivalent number of fresh equity, which is expected to garner Rs8,000 crore.

On the other hand, Tata Steel’s FPO will hit the capital market between 19 and 21January and is expected to rake in as much as Rs3,477 crore at an issue price of Rs610 per share.

The company, which has net debt of $10.7 billion, had taken its board of directors 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, Citibank, Deutsche Bank AG, Royal Bank of Scotland Plc, SBI Capital Markets, Standard Chartered Bank Plc and HSBC Bank.

Meanwhile, delays in SAIL’s share sale may impact the government’s plans to raise Rs40,000 crore this fiscal by offloading stake in PSUs.