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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The recent divestment of National Minerals Development Corporation ( NMDC) reportedly failed to generate  retail interest. The previous divestment, namely, National Thermal Power Corporation ( NTPC ), too did not see many takers.

Speaking on NMDC follow on public offer (FPO), Vetri Subramaniam of Religare Mutual Fund said he did not find the valuations attractive although Religare MF had made a nominal bid. Disapproving of the price bands of the FPOs, Subramaniam said the government's divestment programme are mired in politics which is reflected in its pricing pattern.

Prithvi Haldea, MD, Atherstone Insitute of Research, dismissed the entire theory of government's benevolence and instead questioned the real motive. Speaking to CNBC-TV18, he said there is complete lack of clarity on the intent of divestment and the entire method can at best be termed "arrogant". He felt in order to walk the talk, the government should have given huge discount to the retail investors.

Here is a verbatim transcript of an exclusive interview with Vetri Subramaniam and Prithivi Haldea on CNBC-TV18. Also watch the accompanying video.

Q: Did you subscribe to the last bit of paper which the government offered?

Subramaniam: I presume you are referring to NMDC. We did make a nominal bid from our PSU fund. In terms of the valuations, we did not find it all that attractive. However, it is a big portion of our benchmark. So we have just put a nominal bid from the PSU fund.

Q: Is this becoming a bit of a problem for PSU fund guys? There is a lot of paper but most of it does not seem attractively priced.

Subramaniam: I won't say it is true of all the issues that they have brought to the market so far. One of the issues, which has really been there in the last two or three FPOs, had largely to do with the sort of mechanics that were followed in terms of the French auction system. If at the end of the day these issuances are targeting the institutional investor then perhaps the qualified institutional placement (QIP) method, where everything is done in a very brief period of time, then this elaborate follow on procedure through a prospectus has currently being carried out. This is something for the government and the investment bankers to take a call on.

From our perspective, the price at which this paper is being offered is important. Hence, we evaluated on the merits of that. Going ahead, you will see some interesting issues come through of companies which are as yet unlisted. My sense is in some of these cases because the companies are extremely strong. They have very strong business models. You could see a far more enthusiastic response from the retail investors and the institutional investors.