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Coal India is creating ripples. The pricing is out, and there is a lot of interested people waiting by to subscribe. Around it, the government is embarking on a very aggressive divestment calendar over the next six months. Some big companies like SAIL, Shipping Corporation, Power Grid, IOC, ONGC are all stacked up in the next three to five months.
Divestment Secretary Sumit Bose said that the government will achieve the Rs 40,000 crore divestment target that it has set for itself in FY11. He however added that the government is not aiming to exceed this target. "We cannot have divestment targets increase every year," he said.
Speaking on the Coal India issue, he said the price band set is fair and reasonable. He further said that the country will not have a Coal India like issue every year.
Outlining the divestment roadmap for this calendar and the next and which companies might actually go first, he said Power Grid is the next big FPO in line. He was confident of the Power Grid, Shipping Corporation, Manganese Ore, and Hindustan Copper share sale getting done by March. Bose was however unsure if IOC and ONGC's share sale will happen by March, although he added that the government was trying hard on that front. He informed that the due diligence process was underway for SAIL's FPO.
According to him, Rashtriya Ispat Nigam will be the next big PSU IPO. Bose said the government is in no hurry to push public issues of PSUs.
Below is a verbatim transcript of the interview. Also watch the accompanying videos.
Q: Now that you have already done some Rs 24,000 crore and Coal India is underway, it looks like you will exceed the divestment target or proceeds that were set out by the finance minister in the budget by quite a margin?
A: The budget document speaks of Rs 40,000 crore and that is for this fiscal. So this fiscal actually we have done two issues so far that is SJVN and EIL and roughly that gets us about Rs 2000 crore. Of course we have a whole lot of issues lined up after Coal India and we are confident of reaching the target of Rs 40,000 crore by the end of the fiscal year.
Q: So just to recap what all will get done by the end of this fiscal. You think SAIL, Power Grid, Hindustan Copper and Shipping Corporation will all get done in the next few months?
A: Yes certainly. We have already filed with SEBI for Power Grid, for Hindustan Copper, for Shipping Corporation and for MOIL, that?s Manganese Ore India Limited. And due diligence process is now on for SAIL. In the case of IOC the process for selection of bankers is about to start, and that?s where we stand at the moment. We are of course also looking at ONGC.
Q: We will talk about all of these in a bit but first Coal India. What was the basis of the pricing because I believe that you did extensive work before putting that price band suggestion to the Group of Ministers, what went into your calculation of fixing the price for Coal India?
A: The management and our officers did extensive roadshows. I think the total number of investors altogether we met were about more than 250 both domestic as well as international. The BRLMs also worked very hard and gave us a feedback. We took all this into account in recommending what we felt was a fair and reasonable price for the Coal India issue.
Q: Did you look at the pricing of the peers, international peers of Coal India. Was that given a lot of consideration?
A: Certainly that was also given consideration. But as I said a whole host of factors including comparison with some of the international peers went into it.
Q: Have you at the level of the divestment secretary and at the finance ministry done a conscious rethink in the middle of the year because it is showing in some of the pricing that you have had in issues like REC, Engineers India which were clearly far more attractively priced than the preceding issues of stocks like NMDC, even NHPC?
A: The effort of the government is always to arrive at a fair and reasonable price. In hindsight maybe the government got it wrong in the case of certain issues. But the effort always has been and that was also in the case of NHPC and NMDC and it continues to be price at a fair and reasonable level.
Q: Why did you choose not to get an anchor investor for the Coal India issue?
A: Anchor of course as you are aware is an option before us and we have always kept that option open. But for Coal India basically as the company management and the teams went around both domestically and internationally we found that looking into the demand which was generated we felt that anchor investors were not required in this issue.
Q: Did you discuss the idea of an even narrower price band for Coal India, not a Rs 20 price band or even making it a fixed priced offering with a discount for retail rather than keep a Rs 20 price band?
A: In the entire process, a lot of discussions go on. But I think this is what ultimately the EGoM has approved the price band between Rs 225 and Rs 245.
Q: You are confident that it will end up mopping more than 15 lakh retail participants into the issue because the sheer number of applicants which is required to fill the retail book is quite substantial?
A: Yes, certainly the numbers are substantial. But that?s also the excitement about this issue. If you see the number of shares in the retail bucket of about 20 crore shares then there are another 6.3 crore shares for employees. So that?s what makes it an exciting prospect because here we have a very thriving PSU build-up over the years and it is part of government policy and the disinvestment policy, of people ownership that everyone should get a chance to participate in the issue.
Q: Do you think it would be one of those issues where actually new demat accounts get opened up to participate in the Coal India opportunity because that has been the case. Many years back in some of the large IPOs which actually succeeded in increasing the number of overall demat accounts in the country?
A: Certainly we hope so and in fact at a press conference some of the people there mentioned that some new demat accounts were being opened. We sincerely hope that that will be true and the base of retrial investors not only for the issue but for the entire capital market will expand.
Q: You were speaking about the employee quota, for some reason employees have not participated in the last few PSUs or most of them at any rate with great enthusiasm, do you see that changing with Coal India and any reason why you can think of why employees have been shy of participating in a big way?
A: We must recognise that employees in some of our PSUs, the employees are in far-flung places. Also there are various categories from A to D categories, the officers right down to D categories and in far-flung areas.
So it is always very difficult to reach out to them and even to open a demat account in some of the remote areas is a daunting task. Many of them have to be educated on what are shares and how they should hold shares. So this entire process of educating the employees takes time.
I think that is happening and you would have also seen that some of the issues for e.g. REC where the employees are more in the cities, mainly in Delhi. But in some of the other cities the response has been much better.
In the case of Coal India the management has made an effort to reach out to the employees, they have had extensive financial literacy programmes in general and more particularly on the benefits of what the Coal India shareholding offers. I think we should see a positive outcome of this exercise during the issue.
Q: Before I talk about the other upcoming issues, this 5% retail discount will become a permanent feature for all the public sector offerings that you make?
A: A view is taken by the EGoM, a final view on the discount and by the cabinet before that. So far it has been 5%, but let?s see what happens in the future. We always take into account how we are progressing in making any recommendations. But certainly we have 5% also laid down for the next ? approved by the Controller of Certifying Authority (CCA) for the next few disinvestments.
Q: Let me stick off that you mentioned ? Power Grid, is it coming just after Diwali, second week of November?
A: Yes, it will come after Diwali.
Q: And you have given the pricing, any thoughts on that one because it?s not very far away, just a month to go?
A: Work is still on. In fact today Power Grid team and our officers are in Mumbai. They are having discussions with the investors. So the exercise is on certainly. But it?s still some time away to actually sit down and do it.
Q: Since it is a follow-on public offer, would you be guided by the same pricing formula or principle that worked in EIL and REC?s case?
A: Of course it?s a follow-on public offer. So there is a traded price but we will have to take a final call on that taking into account all our inputs and the discussions with the bankers as well as investors.
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