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Last Updated : Nov 23, 2012 03:26 PM IST | Source: CNBC-TV18

Hind Copper not ideal divestment candidate: Haldea

Hindustan Copper plunged 18% in early trade today after the Government set the floor price for its offer for sale (OFS) at a steep discount to the current market price. In an interview to CNBC-TV18, Prithvi Haldea of Prime Database says he is happy that the Government‘s divestment plan has finally begun.


Hindustan Copper plunged 18% in early trade today after the Government set the floor price for its offer for sale (OFS) at a steep discount to the current market price. In an interview to CNBC-TV18, Prithvi Haldea of  Prime Database says he is happy that the Government’s divestment plan has finally begun.

However, Haldea opines that Hindustan Copper Limited was not the best option for the government divestment. Given the lack of any kind of offering for the past few months in the market, Haldea says there is definitely an appetite and investors are looking for good investment opportunities.

"They (government) could have probably amounted a much larger program rather than starting off with such a small offer. That would have probably been a wiser thing to do," he adds

Below is the edited transcript of Haldea's interview.



Q: What did you make of the one the Government has chosen, Hindustan Copper Ltd and the price that they have set for it?


A: I am happy that finally, the divestment program has kicked off. Eight months had passed and we only heard of announcements and approvals and intentions, but finally something is on the ground.


In case the government is serious about the targets, then ofcourse the problem will be of too much of pile up in the remaining three to four months, but atleast something is happening. However, I continue to remain confused with the way the divestments are being handled. In this case, for example we all know that it is a highly illiquid stock, there are hardly any shares in the market and yet the base price or the floor price has been kept almost 40-45 percent lower than the market price.


On the other hand, some of the institutional investors that I have spoken to, say that this floor pricing is still higher by 30-40 percent than what is the real fair value of this company. As a government company, the whole debate has been on how one cannot under-price an IPO. For example, the whole debate about giving discounts to retail investors was conducted on the fact that you cannot sell something cheaper than the market price.


Now in case of a listed stock when there is a benchmark, it is going to be very difficult for the government to explain if book builds today at a price which is close to the market price or much higher than the floor price because then, obviously the accusation would be that you have sold the stock cheap. I am really going to be watching as to what kind of bids come today, because the fair value ultimately is again in the eyes of investors. I don’t know what kind of pricing institutional investors, domestic as well as foreign, are going to give to this offer.


However, it is a small issue. So I don’t think it is going to create any tremors in the market, but will it be a test case for future divestments? I don’t think it is going to set any kind of example because each Offer for Sale (OFS) is going to be a standalone OFS based upon its own trading patterns, pricing fundamentals. Therefore, this is not to say whether you are testing the liquidity or the appetite in the market. So, this whole argument that this is a small stake sale just to ascertain the interest of the market is not very correctly placed.


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Q: Should they have gone with Hindustan Copper first, with so much ambiguity about the pricing, as you said illiquid counter? When you are kick starting a process after 8 months could they not have gone with a more sanguine candidate as the first one?


A: The market has been devoid of any kind of offering for the last several months. So there is definitely an appetite, investors are looking for good investment opportunities and in the stable of divestment are some good companies. They could have probably amounted a much larger program rather than starting off with such a small offer. That would have probably been a wiser thing to do. Now the question remains- how do you price a listed stock? We have seen the example of ONGC where they tried to price it close to the market price and we know what happened to that issue. So, if you sell it cheaper than the market price, then obviously there will be accusation. No government would be willing to take all the criticism which may come because of under-pricing.


Pricing is something that obviously has been the key issue all these months for the government not to start its divestment program. Market condition is not getting the right price and therefore, I think we still need to revisit this entire program in terms of how to distribute these stocks to the retail.


Take for example, National Thermal Power Corporation (NTPC) or Steel Authority of India (SAIL) which are widely traded and its price discovery is comparatively fairer. It would be a good idea to offer a 10-15 percent discount and give it to people who have an application size of Rs 1 lakh or Rs 50,000 or below, and spread it across the country. This is public wealth going back to the public. You can raise this kind of money very easily. There is enough depth, there is enough interest in retail investors to buy into PSU stocks because most of the companies are large companies having a huge track record and a discount to the market price that will give the comfort level that the retail investors want. In such a scenario, there is no criticism in that kind of pricing, because we are allotting to anonymous small investors and therefore nobody can accuse you of under-pricing.

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Q: The NTPC experience wasn’t great either. Amongst the institutional investors you have been speaking with, is it looking like it is going the same way that the only person who is going to raise their hand is going to be LIC again in many of these issues?


A: The signals I am getting are pretty confusing. While some people are saying that this is grossly overpriced and therefore there may not be real institutional demand and therefore it may finally end up with the Government or with LIC. Retail investors we can almost forget, they are trying to get into this bid because obviously retail investors have either no cut off price or there is no fixed price and they cannot really actively bid in auction like this. So, at this point of time I really do not know what kind of response this offer would generate? Surely there will be more than one investor. It will not be as bad as ONGC, but I would not be surprised in case the response is lukewarm.


Q: Why is the government’s confidence on doing fresh IPOs so low? It always wants to plug the low hanging fruit by offering something which is already listed and quickly getting a few thousand crores. Why not go with an Hindustan Aeronautics Ltd (HAL) IPO or Rashtriya Ispat Nigam (RINL) IPO and create some more excitement? Why is the government so under confident?


A: From what I learnt about RINL, the feedback that the government got from the merchant bankers, was that the pricing has to below the book value. There was no way that the government could justify selling a stock below the book value and therefore the whole deal fell through after almost reaching the last stage. So, obviously, the price has to be something which has to be accepted by the market place.

You cannot take market prices as one parameter, book value as another and third parameter for another issue. We’ll have to really go issue by issue and look at what is a good price that what the market is willing to take. In cases where you think that you can make a mistake in pricing, go for a closed auction.


If you are desperate to raise money, don’t do a public offering through any of these routes. Do a closed auction of the Maruti kind where you just invite bids for X number of shares and let institutions bid at the price they think they want to acquire those shares for. We know that Maruti got a very good deal when it did a close auction almost 10 years ago.


So, we want to use the public route. We want to say that retail investors should also have an opportunity to participate. At the same time, we are not designing policies or processes which will actually encourage and bring in more retail investors.


Yes, HAL is a very good candidate to go public or even RINL, but the whole issue is going to be, what price does the government expect? Does the government also want to maximise the price? Therefore, if that price is not available from the feedback then the IPO is put-off. Last eight months we have seen all issues being put-off purely because of market conditions which means price.



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First Published on Nov 23, 2012 01:26 pm
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