Home / Politics / Policy /  Govt selects bankers for divestments

Mumbai: The government on Wednesday selected investment bankers for divesting a part of its stakes in 10 state-owned companies, according to two people aware of the development.

The government had divided these 10 companies into two baskets of five each, according to data available on the website of Department of Divestment.

Basket one comprises Oil India Ltd, Container Corporation of India Ltd, NMDC Ltd, MMTC Ltd and ITDC Ltd. The second basket consists of power producer NTPC Ltd, Bharat Electronics Ltd, Engineers India Ltd, Nalco Ltd and Hindustan Copper Ltd.

The government is looking to sell stakes of between 5% and 15% in these firms.

SBI Capital Markets Ltd, ICICI Securities Ltd and Yes Bank Ltd were chosen as the investment bankers for the companies in the first basket.

SBI Capital Markets, ICICI Securities, Edelweiss Financial Services Ltd and Deutsche Bank AG were selected to manage the sale of stakes in the second basket of companies, the two people mentioned above said on condition of anonymity.

Deutsche Bank was the only foreign bank that applied to manage the asset sales.

“The second basket size is worth almost 10,000 crore," said one of the two persons. Stake sales in the companies that are in basket one could fetch the government almost 9,500 crore, based on the 15-day average price of the five stocks.

So far this year, there have been two divestments by the government—in Rural Electrification Co. Ltd (REC) and Power Finance Corp. Ltd (PFC). While PFC managed to raise 1,600 crore last month, REC raised 1,610 crore in April.

Receipts from stake divestments have been estimated at 41,000 crore this year. Also, additional resource mobilization of 28,500 crore has been estimated from strategic divestments to meet a revenue shortfall.

In 2014-15, the government had set a target of 63,425 crore through stake sales, of which it collected only 31,350 crore, including 5,000 crore from the sale of special drawing rights to the Reserve Bank of India.

Even though government divestments form a sizeable chunk of primary market issuances, investment bankers hired for these issues hardly make any money off these.

Typically, investment banks, which charge between 2% and 3% of the issue size as their fee in share sales by private companies, quote extremely low fees to manage government asset sales, sometimes as low as 1.

“This happens because of the way the system is designed where you have technical bids and then financial bids, where everyone has to match the lowest bid to get the chance to manage these issuances," said Prithvi Haldea, chairman of Prime Database, a primary market data tracker.

Investment banks participate in managing government asset sales even at these low fees because staying out would affect their league table rankings, Haldea said.

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