NTPC, Oil India issues likely in January: Divestment secy

The government has put its divestment process on a fast track to meet the target for FY12. National Mineral Development Corporation (NMDC) got very good response from global investors. The next on government’s radar is NTPC.

In an interview to CNBC-TV18, divestment secretary DK Mittal says NTPC issue is likely in second half of January or early February. He also expects Oil India issue in first half of January. "Oil India issue is likely before NTPC," he adds.

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Pricing, he says, will be based on the market conditions. "It is tough to time issues, valuations will be based on the market conditions. No initial public offerings (IPOs) are expected in FY13," he asserts.

According to Mittal, policy limitations remain a key risk for PSU companies. "We don't want investors looking to make short-term gains. LIC is not a short-term player. It will hold companies for over 10 years," he adds.

Hindustan Zinc (HZL), and BALCO stake sale will be put forward to Cabinet soon. "It is upto mines ministry to take HZL, and BALCO stake sale forward," he elaborates.

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee

Q: National Mineral Development Corporation (NMDC) got very good response from global investors as well but the next big case for you is National Thermal Power Corporation (NTPC). Would you look at pricing as attractive as NMDC even for the NTPC issue in January?

A: No I don’t think it is a question of making the price attractive or not. The idea would be at that at that point of time when we decide to disinvest - how is the market condition and what the strategy would be used. It is premature to say anything at this point of time.

Certainly, we would like to have a strategy where the government makes money and the investors make money. It is not that we only want to make money from government of India.

Q: NTPC will hit the market in the first 15 days of January you would say?

A: That would come either in the second half of January or first fortnight of February.

Q: But that is the next one that is coming through or do you have something else lined up in the interim?

A: We also have Oil India that also should be coming out.

Q: So what is the targeted timeline for Oil India?

A: That should be within January first half.

Q: Are you going to complete your calendar of this offer for sales; large companies like Steel Authority of India (SAIL), Bharat Heavy Electricals (BHEL) before you look at any IPO from the governments table?

A: We have a target announced in the Budget before parliament of Rs 30,000 crore. So we have a number of companies, which have been agreed to at different levels and we are going ahead with that plan. Presently Oil India and NTPC are signed and the rest will follow.

Q: Is there any apprehension or resistance to the idea of selling this paper because stocks like NTPC, BHEL, SAIL are trading at multi year lows. Is there any apprehension that you are selling off this paper at very low valuations from a government perspective?

A: When we sit for the pricing, at that time we will look at all the parameters. As all of us know, it has not been possible to time the best price for any issue, for anybody. So it is a question of the intrinsic value of the companies. The long-term investors and the institutional investors know the intrinsic value. That’s how we should be working when we decide on the pricing of the issue.

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Q: Do you fear that the Life Insurance Corporation (LIC) might have to buy a large part of these issues like they did for Hindustan Copper, in issues like SAIL, BHEL, etc. where the market appetite may not be very strong unless you price it really attractively like NMDC?

A: Out of the 15 issues which this department has done, only in two-three issues LIC have come in. In NMDC they have not come, their share is less than 3 percent. So I don’t think it is fair to say that as a matter of general policy, it is the LIC which is bailing out the government.

Q: But you will admit that that is specific only to the NMDC experience as also because you choose to price it at such an attractive level. We believe this morning there are reports that you have been in meetings with investment bankers, you are looking to do pricing differently, is there any truth to that? Are you trying to find a more lucrative price to set out in the market because of the kind of response you got with NMDC, on NTPC or Oil India?

A: These are national assets and we have a responsibility to see that they are sold at the right price. As you all know, NMDC share was hit very badly before the issue came in. So we have to have a strategy keeping that in mind that the market tends to bring the share price at perhaps the lowest level because these are listed companies. Therefore our strategy has to keep that in view.

Pricing is only one part of it; there are few more parameters which we have as part of our strategy, which I cannot divulge at this stage. So, pricing is one of the important parts, but that is not the only part of the selling strategy.

Q: Could you just fill us in on what the plan is for Hindustan Zinc (HZL) and for BALCO in that case? Are you keen on going in for an Offer For Sale (OFS) for that as well, what is the timeline because that will be a significant amount of money when raised for the government and will help towards your divestment target?

A: HZL issue has to go to the cabinet. Once it is decided by the cabinet then we would have the authority to comment on that. At this stage it has not been decided by the cabinet what to do about it. But very shortly it should go to the cabinet. The department of mines is taking it forward.

Q: The bigger issue is what you are doing with the larger issues like NTPC and ONGC because those are the ones where you raise the most amount of money. There the experience has not been good. You did an NTPC issue two years back at Rs 202, the stock is Rs 150 today, you did Oil and Natural Gas Corporation (ONGC) at Rs 290 where LIC bailed you out, the stock is sub Rs 260 today. Can you do anything to address those issues because it is not like you do this and you don’t come back to the market. You have to periodically come back to the market. Can you do it in a way where it does not sour the taste for investors who bought these large tranches of government paper in the past?

A: Yes I agree with you but one has to keep in mind two issues. Firstly, some of these stocks suffer because of the policy limitations, action on the policies. Now if they were to correct a few policies these stocks would be valued may be at twice the price they are today. So anybody who is investing in these shares will have to take that risk of the policy. These risks require these shares are held for slightly longer time.

Secondly, the criticism for LIC though repeatedly is being said is not fair because LIC is not a short-term trader. They come for the intrinsic value, which may not be acceptable to everybody. But if they feel there is a value then they would like to hold it for 10-15 years, that’s the way they go about it. So, on both the issues I would like to clarify that when we invite investment for these stocks which are the ‘Jewel of India’ then we are looking at investors who are not traders but who come in for long-term perspective.

We have no reservations on traders who are coming in but we want investors who are going to be a part for it for sometime and then look at the valuations.

Q: So just to get back for a clarification quickly, you said Oil India in January and NTPC in late January, early February, does it mean that Oil India will come before NTPC?

A: Yes that is the plan as on date.

Q: Can you give us a sense of the names that have been short listed in terms of hitting the market with an IPO and what kind of rough timeline there is over there?

A: I cannot say anything at this stage, may be after 15 days we would have better clarity on that.

Q: There were some reports that Hindustan Aeronautics (HAL) may be the one in question or the one that is up for an IPO offering. Can you confirm whether that is indeed part of the list?

A: We do have a few issues to be put through the IPOs but we are still not complete with the process. As you are aware IPOs do take a longer time, so I don’t expect anything to hit within this financial year, they might go to the first quarter.

Q: With Oil India and NTPC then, by the time you hit the Budget what kind of proceeds do you target to raise, now that NMDC is done and there are these two issues?

A: We should be between Rs 22000 crore or so and by the end of March we should be touching Rs 30,000 crore.