Ahead of road shows for state-owned Housing And Urban Development Corporation or HUDCO that launched their Rs 1,200 crore initial public offering (IPO) yesterday, CNBC-TV18’s Latha Venkatesh caught up with Secretary of Department of Investment and Public Asset Management (DIPAM) Neeraj Kumar Gupta to find out the thought behind the 10 percent stake sale in HUDCO
He said the listing, which is first in FY18 is in line with Budget 2017 announcement to list big size profit making Central Public Sector Enterprises (CPSE). The last such big-ticket listing was of NBCC in 2012, he said.
Divestment is being done with a purpose to share the wealth of the company with the public, he said.
The government may divest further stake in HUDCO going forward because they are allowed to divest upto 25 percent in listed companies in three years, he said.
As per the Budget directive, the government will streamline listing of CPSEs in a time-bound manner and so one can look forward to many more PSU IPOs. However, he said there is no strict timeline for divestments.
The government is also looking at products like exchange traded funds (ETFs), to help investors and meet their appetite, he said.
Below is the verbatim transcript of the interview.
Q: What are your thoughts behind the 10 percent stake sale in HUDCO?
A: The listing of Housing and Urban Development Corporation (Hudco) which is first in FY18 is in line with the Budget announcement that we will be listing big size profit making CPSEs and HUDCO is first in that line. It is happening after five years. Last listing took place NBCC in 2012. So, in this very process, we are divesting 10 percent of Hudco\'s stakes and in addition to that, the quota for employees also is there. Now, this is basically, the process of sharing the wealth of the company with the public.
Now, after listing, enabling it to access the market for its professional needs and unlocking the real value of the company. In this very process, after listing HUDCO which is a very reasonably leveraged company, they have a leverage ratio of 1:3 only, whereas they can go up to 1:16 and considering that affordable housing is the priority of the government and that urban infrastructure is the priority of the government, now they will be able to access more funds from the capital markets which otherwise, they were not able to.
Q: Then why did you not think of a larger divestment? Why only 10 percent?
A: There is a SEBI process and we had been traditionally following that process. So, further divestment will come out. We have to divest upto 25 percent for listed companies in a period of three years. So, this is just the beginning.
Q: As you say, the government has not done too many initial public offering (IPO) after NBCC, which was a very successful IPO. Also successful for shareholders who invested in it. So, should we expect that you will concentrate on IPOs? After all, there are two rail companies in your list.
A: If you follow the announcement in the Budget, there has been a very specific announcement that government will be streamlining the process of listing of the CPSEs in a very time bound manner and we are committed to follow that directive in the Budget. You can expect many more IPOs. We are working on them parallelly -– railway IPO, defence sector IPOs, shipping sector IPOs, so there are many which are in the pipeline and I am sure if the environment keeps supporting us, you will see more activity in the IPO field also.
Q: The environment is very kind even in the secondary markets. After all, we are trading at all-time highs. Therefore, follow-on public offers, what is the timetable?
A: I really cannot discuss the timetable with you on any of the divestments, but trust me, we will be very prudently divesting, we will be understanding the market and at the right time, we will be making the divestment. There is no strict timeline for any divestment because this is market sensitive.
Q: But is there something in the nature of which companies you will come with first? Would it be companies like Indian Oil Corporation (IOC), the very large public sector undertaking (PSU) that you have? Any sequencing at all?
A: I am constrained to say. I cannot respond to this question.
Q: Should we expect that you will also be proceeding with exchange traded funds (ETF) with the same vigour? That has also found a lot of appetite.
A: In the Budget itself, there has been an announcement that the government will be considering more such instruments. So I can promise you that we are working on that and we will come out with more products like ETFs for really helping the investors and meeting their appetite.
Q: What will be the guidelines you will follow for the follow-on public offers because there is a lot of public interest in that follow-on offers, Power Finance Corporation (PFC), Rural Electrification Corporation (REC), IOC have all been doing very well?
A: You are referring to offer for sale (OFS) basically. The further round of divestments. I am constrained to say that. I will not be able to comment on any one of them.
Q: Have you already started asking for merchant bankers for these seven companies where you have OFS?
A: We always keep our divestment pipeline ready. It is without any timelines. We are simply creating a pipeline of merchant bankers and legal advisors so that whenever the time is right, we can take that decision swiftly. This is nothing to do with any timeline on divestments.
Q: You had also said recently that you have asked public sector companies to follow certain guidelines on capital restructuring. What exactly is the directive you are giving them?
A: In the last Budget, the responsibility entrusted to us was investment and public asset management and not merely the divestment. This meant that we have to look into the investment of the government in central public sector enterprises. With that in mind, the guidelines were issued in May, 2016 which comprehensively looks into the issues of how capital invested in CPSEs has to be taken care of. They should give you decent returns, they should be more efficiently utilised. It should not be parked only in the banks, it should lead to higher economic activity in the economy.So, these national priorities in mind, these guidelines are very structured and applicable to all the CPSEs. And you have seen a lot of activity along with these guidelines. CPSEs have been paying the best dividends. They have been going for buyback which has been followed even in the private sector. Seven CPSEs went for the buyback in the last financial year. They are giving much better bonus and they are going for splitting of shares, so that more and more investments and more small investors can take the advantage of it.