Why do PSU share sales happen on Mondays?
3 min read 25 Aug 2015, 12:42 PM ISTThe latest disinvestment of 10% stake in IOC was again carried out on Monday. Here's why
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New Delhi: At its board meeting on 23 June, capital markets regulator Securities and Exchange Board of India (Sebi) rejected a finance ministry proposal that it be allowed to give a one-day notice period for offer for sales (OFS) through the stock market for stake sales in government-owned companies. The disinvestment department had been complaining that since it has to inform the market about the OFS two days in advance, the stock gets hammered by investors, making the OFS less attractive.
Sebi gave a way out to the disinvestment department. It said the two-day notice period (T-2) will include one trading day and a banking day instead of the earlier practice of two trading days. This effectively gave the option to the government to time its disinvestments in a way that it can inform the stock markets about the OFS on a trading day and declare the floor price for the OFS on the next day—which can be a non-trading day but when banks are open—and finally carry out the stake sale on the third day.
Such alignments occur once every week on Fridays when markets are open, followed by Saturdays when markets are closed but banks are open at least for half days. Thus, the OFS can be carried out on Mondays, effectively with one trading day notification.
The government jumped in to use this opportunity. After the new rules came into force, on 25 July, a Friday, the government informed the market of its intention to sell 5% stake in Power Finance Corp., announced the floor price on 26 July, a Saturday, and carried out the OFS on 28 July, a Monday. The retail component of the share sale was subscribed 4.5 times and the institutional investors’ category was sold 1.8 times, helping the government garner around ₹ 1,600 crore from the market.
In contrast, the first disinvestment of the year in April, when the government sold 5% stake in Rural Electrification Corp. for ₹ 1,600 crore, the OFS was carried out on 8 April, a Wednesday.
The latest disinvestment of 10% stake in Indian Oil Corp. Ltd (IOC) was again carried out on Monday, 24 August, where the government managed to garner around ₹ 9,400 crore despite the Sensex and Nifty slumping nearly 6%, posting their biggest daily fall since January 2009.
The only exception is the disinvestment of 5% stake in Dredging Corp. of India (DCI) Ltd which came three days ahead of the IOC stake sale, on a Friday, 21 July. However, this seemed more like testing the waters for the IOC stake sale rather than a significant disinvestment process as DCI is a small-cap company with ₹ 735 crore revenue as on 2014-15. The 5% stake sale in DCI fetched ₹ 53.4 crore to the government.
However, the way out provided by Sebi to the disinvestment department has been constrained by a notification by another arm in the finance ministry, the department of financial services (DFS). In a 20 August notification, the DFS said that with effect from 1 September, banks in India will remain closed on the second and fourth Saturdays every month as these days are declared as public holidays, while banks will function full time as on any working day on the first, third and fifth Saturdays of every month.
This is definitely not good news for the disinvestment department as it has an ambitious divestment target of ₹ 63,425 crore for the current fiscal year. No wonder, on Monday, disinvestment secretary Aradhana Johri said she would again take up her earlier demand for one-day notice period to the markets with Sebi for stake sales through the OFS route.
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