PSU FPOs: Why they fail to get retail support

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PSU FPOs: Why they fail to get retail support

In a joint discussion on CNBC-TV18, Vetri Subramaniam of Religare Mutual Fund and Prithvi Haldea, MD, Atherstone Insitute of Research gave a thumbs down to the recently concluded NMDC follow-on public offer.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS NMDC issue priced at Rs 300/share NMDC gets poor response; Ex-Disinvestment Secy defends govt ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets NMDC BSE | NSE 29/05/12 Are Mutual Funds betting on NMDC? Other Stocks in this news NTPC |

Q: Aside from what happened on the retail even the FIIs weren't exactly queuing up for this issue and they were expected the once who wanted to pick up parts of these blue chip shares. The investment bankers will tell you the management is the one deciding the price and the management will tell you its advice from the investment bankers. Which part of this loop is going wrong?

Subramaniam: In case of NMDC, it's just a fact that you had a benchmark price which was the price on the exchanges. Therefore, from the government's point of you, I suspect there was a compulsion to not be seen as doing the discount as a huge discount to that particular price. So that is where the compulsion came for the government but remembers as far as foreign investors are concerned the entire world is their playground. So they have the option of buying in Brazil rather than buying NMDC in India if the pricing is extremely expensive.

When you reach out to global investors, it is the global peer group comparisons that you will have to keep in mind that is something we will have to find the right via media. It goes back to the other issue that Mr Haldea dwelled on which is in general. The following offerings tend to see retail investor interest or for that matter even from institutional investors based on the extent to which there is a secondary market price that is what people focus on and therefore arguably a QIP is actually a better mechanism for selling shared down to institutional investors in a company which is already listed than opposed to a FPO. This is a very complex sort of procedure and you also run the risk of markets moving during the period when the offer is open.

So there needs to be some rethink on what is the best mechanism to do this. Obviously, there is also this issue of increasing overall retail participation. You will see increase in retail participation come though only on the companies, which are as yet unlisted and over there if you are able to get the valuations right and attractive. You will see a lot more retail interest come through. So there is no reason why we cannot have companies which are very well known to the public.

I am sure at the right pricing every LIC policy holder in this country would be looking at owning shares in that company as well. We just need a little bit of innovation and more thinking in terms of what are the right brand names, how can we price it right and how can we get the retail investor to actually participate.

Q: How big is this political element that Mr Subramaniam referred to that parliament will make a big hue and cry if you say at Rs 400 current market price NMDC then you would have offered the stock at Rs 250? Is that a big issue and would the logical way of skirting that issue is to do a QIP rather than doing a FPO?

Haldea: According to me, there is zero political fallout because when I am talking of retail investor, you are basically making issue to anonymous investor of one lakh or less. All the parliamentary questions of CVC would come-in in case you do a strategic sale where the proceeds may not be as transparent as they are in an IPO. In an IPO, no government or an officer can be faulted for under pricing as long as you have put the policy in place that we want to bring in more retail investors and we will give a discount and therefore no single large entity is benefiting from the discount. That is the reason why the government has actually adopted the public offering route because this is controversy free. There cannot be any acquisitions as far as pricing is concerned.

On the other issue of why the government has not used more efficient methods, I can ask the same question right now for NMDC. Should there not be a question in the parliament as to why the government has sold the stock at Rs 300 when the current market price is Rs 352? Why was NTPC sold at Rs 201 when it had seen the all time high of Rs 270? These are questions only in imagination. We have to decide that we to get more retail investors and we will offer them discount. This is public money going back to the public and this is anonymous investor. Hence, there cannot be any political fall outs of this.

As long as you get the policy right, we really want divestments to work and to enlarge our markets both in terms of number of companies listed, the depth of those companies as well as number of investors. Our investor population continues to languish at Rs 1-1.5 crore. We have to take this to Rs 5-7-10 crore. At least 10% of our population should be in the market and what better opportunity than the PSU stocks.