Prithvi Haldea, managing director, Prime Database says there are no supply related issues as the pipeline for public service undertakings (PSUs) for divestment is very strong. The problem, Haldea adds, is to do with the government‘s view on the fundamentals of the company and it‘s pricing in the market.
The government has not even started the process of divestment this year as out of the guided Rs 54000 crore, only Rs 1326 crore have been sold, says Prithvi Haldea, managing director, Prime Database.
In a discussion with CNBC-TV18 on the planned divestments in the country, Haldea says there are no supply related issues as the pipeline for public service undertakings (PSUs) for divestment is very strong. The problem, Haldea adds, is to do with the government’s view on the fundamentals of the company and it’s pricing in the market.
“Hence, don’t announce an issue to the market place of a listed stock because it has been seen that the market then breaches the price and the government is then forced to do an offer at a very low price. Take the market by surprise. Do a close auction then let the institutional bidders take a call on larger quantities at a price even higher than the market price,” he suggests.
Below is the edited transcript of the interview to CNBC-TV18.
Q: What is your call looking at the current scenario, do you think the divestment target that the government has for FY14 is reasonable and looking at the pipeline, do you think that would be met?
Haldea: If I look at the data, last five years the targets have not been met. Although we had a pretty decent year about four-five years ago, subsequently we have always fallen significantly short of the target.
This year, of course in the first six months we are far below the target. As against the target of Rs 54,000 crore, which is the most ambitious target ever, we have till date in the first six months seen only Rs 1,326 crore.
Obviously we have not even started the process of divestment this year and typically we have seen that most divestments tend to happen towards the end of the fiscal. So, we may see a rush starting January, February and even March some of these issues coming but clearly we are far behind the targets this year.
The pipeline is very strong. There is a long list of public sector undertakings (PSUs) which need to divest which have already announced the divestment programme with large sums of money.
I can read out names of at least 20 companies which are in the pipeline. So, I don’t think there is a supply side problem, the problem is to do with the government’s view on pricing.
For example, the Indian Oil Corporation (IOC) divestment may not happen because the government thinks that the current price does not reflect the company’s fundamentals or because there is a ministerial opposition per se vis-à-vis divestment. Therefore a lot of these issues get deferred and ultimately gets sold under some kind of distress. I have been arguing for a long time that don’t announce an issue to the market place of a listed stock because we have seen traditionally that the market then breaches the price and then you are forced to do an offer at a very low price.
Take the market by surprise, for listed stock there is no need of information disclosure, just take the market by surprise and do a close auction then let the institutional bidders take a call on larger quantities at a price even higher than the market price in case the stock is worst, much higher than the current ruling price which could be impacted by a lot of current market conditions. Let it be closed auction. So, I think that is
where we are.
Q: What is your call on that, looks like we are falling short of target, IOC has been deferred, it is an election year, so don’t know if that one time diesel price hike will come in this financial year, how would you approach this whole scenario as a banker?
Ramesh: As a banker a number of us have been involved in the disinvestment programme over the years. I would like to give a little different flavour to what Prithvi Haldea’s view. The government as an issuer has also become pretty smart about how it would like to go about its disinvestment programme. I do agree with Prithvi Haldea about the fact that there is a disclosure given to the market well in advance of the offering and that is something that can be looked at for how they can do it differently but otherwise, from a perspective of pricing, understanding where the investor appetite is and what would be the right timing for a particular deal, I think the government has typically in the last couple of years tried to do a good job of taking the right deal to the market at the right time.
The second thing on the disinvestment is while not much has happened in Q1, if one looks at companies like Coal India, Power Grid, there are some strong offerings. So, I would be optimistic about the disinvestment programme. The only thing is that this dilemma in front of the government at times because the market is very volatile on whether this reflects a reasonable fundamental value is the key thing to watch for.
Q: Just wanted to focus on IOC, it has now been delayed in terms of road shows which was scheduled for this month, one do you think that there is enough appetite for IOC to be absorbed in this market at this point and secondly do you think that this makes sense to delay it till there is more clarity once the Kirit Parikh committee recommendations do come out?
Ramesh: I would not like to comment on a specific deal but there are two factors which I understand are weighing in the people’s minds. The first one is about the increase in the under-recoveries of diesel and second is the fact that in recent months we have also seen the crude oil prices go up. So, these two do have an important bearing on both the stock prices as well as how investors could look at this offering. So that is the reason why the jury is out on this.
Q: Just wanted to concentrate on the concept of a possible buybacks for the likes of Coal India, what is your view on the same as opposed to going in for an offer-for-sale (OFS)?
Haldea: My views on divestment have been consistent for the last ten years. I have been saying that divestment should not be just for meeting the fiscal deficit. The divestment programme should be used for broadening and deepening the capital markets. However, markets are very shallow.
Our investor base is very small and PSUs represent comparatively better stocks than IPO from an unknown company. Therefore, we should use this opportunity to increase our investor base for all IPOs. For example, I have been recommending that one look at a hefty discount retail investor. This is public wealth going back to the public. An anonymous Rs 100,000 investors or less just do a discounted sale, new investors will come in to such PSUs at a good price and then they will probably stay in the market and increase their exposure to the market.
We continue to mourn about the fact that we have such a small population of investors but we are doing nothing about it and PSUs, according to me, represent the best opportunity to increase the investor base. So, as far as IPOs are concerned, I think these have to be looked at very seriously on the retail offering and for listed stocks, I think we should go on to the auction method to closed book to let the institutions which are big buyers to look at the company from a long-term perspective.
We should and take stocks not for trading purposes but take stocks where they think fundamentally there is value available because the companies are strong and they have a future.