Divestment target doable, if issues priced fairly: Axis Cap

The government has pegged FY13 divestment target at Rs 30,000 crore. In an interview to CNBC-TV18, S Subramaniam, Axis Capital says the divestment will be successful, as long as it is fairly priced.

According to him, there is an appetite for good quality large companies. Below is the edited transcript of his interview with CNBC-TV18′s Latha Venkatesh and Reema Tendulkar. Q: Not a penny of a divestment has happened so far. How confident are you that the budgeted figure is going to be reached at all? A: I think that the government is looking at bringing across a good set of companies. If you look at the companies that are coming across, they are good companies. We ensure that the divestment will be successful, as long as we are able to have them fairly priced. Q: Is there appetite for so much paper at this point in time? We have seen the market go into a bit of a huddle. Now after hitting perhaps a roadblock in terms of the RBI policy, we could hit a winter session which would pose more possible sentimental hurdles to the market. Do you think there is appetite? A: Yes, the appetite is there. What is it that we are talking about? All the divestments put together, if you take the other private sector players coming out, we are still talking about USD 6-7 billion of total funds to be raised between now and March. What is USD 6-7 billion in USD 1 trillion plus economy? I think we have seen in the past, in the country, more than 10 percent of market cap being raised in a single year. So, I think that USD 6-7 billion in a USD 1 trillion plus economy is not much. We also have to look at that amount, against the backdrop of the USD 18 billion of cash that already has come in. So, it is more a question of, ‘are we getting the right companies, are we pricing it right?’ rather than ‘is there an appetite?’ There, definitely, is an appetite for good quality large companies. Q: Apart from Bharti Infratel, we have not heard too much by way of private companies looking to tap into the primary or in the secondary market. When do you expect that to revive? A: I think, on the private sector, you will find partly IPOs, but there would be much more number of companies that will access the QIP route because it is a faster way of accessing capital. Many of the listed companies also require capital. So, you will find a combination of both an IPO, which will happen in the current quarter or the next quarter, but there will be a lot more number of QIPs, follow-on offerings, which will happen quicker. Q: You are in on duty parades for the divestment process, what is your sense? When may the first of the divestment issues hit the market at all? A: I think we are there in couple of transactions with the other banks. We are working with the government. As soon as the opportunity comes, we would want to be on the road. So, let us see how soon we can actually put to action this disinvestment process. We are talking to the government. We will soon come out. Q: Rs 30,000 crore of divestment has now to be done in about five months. What is the kind of market impact that will have on account of so much supply hitting? A: I think if you look at many other companies that are there in the government disinvestment programme, you will find that many of them are what we call value companies. For many of these value companies, you will find that these stocks are probably already cheap. Therefore, these are not going to impact the stock price much. Also, if you look at them many of them, they have lower levels of liquidity. Issues like this can actually improve liquidity. Improving liquidity itself is a positive thing for these companies. _PAGEBREAK_ Q: It all comes down to any issue being priced successfully. What, according to you, is the right amount or a discount perhaps for so much supply to be absorbed by the market? A: I am not talking about discount as much as what is the clearing price at which we will find not just a demand for the offering size, but also there is an extra demand for the after market. So, we need to find the price at which there’s not just the amount, which is being on offer, for which we find demand, but also additional demand so that after market the stock trade off. Q: The withdrawal of RINL, we understand, was on price reluctance or reluctance to come to a realistic price perhaps. Given that, are you seeing pragmatism to come down to more realistic levels from the government side? A: We haven’t been involved in RINL. So, I can’t comment on that. But I think that when we are talking to government, we are finding them being very pragmatic. Q: When you speak to the institutions, whether it is domestic or FIIs with respect to the kind of appetite they have, do you see appetite evenly spread across all the eight issues that the government has in mind or is it concentrated on a few and perhaps some of them might not make it because the outlook for them is not that robust? A: First of all, we are not involved in all the eight. Therefore, I cannot talk of all the eight. But on the transactions, where we are involved, we are finding that there is a decent level of interest from investors. The government is also being pragmatic. Both put together, I am sure that this will be a recipe for success. Q: I wanted to ask your opinion on the two things that the Kelkar Committee spoke about. They spoke about on tap sales as a possible major, akin to the RBI doing on tap sales in the bond market. Also, they spoke of some kind of an ETF of some 50 PSU shares. Are these feasible ideas at all? Do you see the government talking about it, in the public space, they have not? A: The ETF is something, which they are talking about. Our view on that is that it is a good idea to work and is worth exploring. In terms of the on tap, I think the only thing the government needs to be aware, when we talk of on tap, is that that should not keep a downward pressure on stock prices for long time. As long as we know the amount, which will come out for a particular period of time, I think that is acceptable. But an amount that is not fully told and a cap is not given is something that the market will be apprehensive. But as long as we know the size, I think that is fine. Q: What are the chances that the government may have already miss the bus? There are pretty stiff hurdles as we go ahead, there is the winter session, which could throw up news wise, headlines wise bad news. The global markets have got a bit tepid now. Is it possible, what are the odds that they have already missed the bus? A: I am not so sure. Going back to 2004, in a single month of March, the government raised a huge amount of money. I think, therefore, raising money in bits and pieces. We still have five months to go before the year closes. All we need is that three or four weeks, good weeks in that. I am sure that you will be able to raise the kind of money that we are looking to do. So, the market will continue to be where it is. But I think that we can still find opportune moments within that market. Q: You spoke about private companies looking to go via the QIP route a little more. How large is the QIP pipeline for this fiscal year as you see it? A: What they have announced and what we understand is that it also depends upon the price points at which the stocks are. What we understand is that from the private sector it could be anywhere in the USD 2-4 billion. But because this is a QIP, the process can get activated very quickly. The numbers can change, if the market changes as well.