Closed auction best for SUUTI stake sale in Axis: Haldea

Q: Focusing on Axis Bank-SUUTI stake sale - what do you think will be the most likely route adopted for the SUUTI stake sale? What will be the interest generated once and if it does come through in February?

A: For Axis Bank again I would very strongly recommend that we should follow the Maruti method which was closed auction. The government got rid of its final stakes through a closed auction and the base rate that came was above the market prices. Axis Bank is a thriving bank. It is a bank with a future. It is a bank with a presence in India.

There would be investors who would be willing to acquire shares at a price much higher than the market price and I would strongly recommend that SUUTI should not be through a follow-on public offer (FPO) or an offer for sale (OFS) in the present methodology. We should look at strategic investors bidding in a closed auction and I am sure that the pricing that government would obtain will be much better than current market prices.

Q: The government is mulling a PSU ETF. How do you think it will work? Do you think that product will generate as much interest?

A: It is again an idea which has been considered for long, but my thinking on that disinvestment is again very clear. I have been saying that disinvestment should not be looked upon as an instrument for fiscal deficit. Disinvestment should be looked upon as a method of enlarging and deepening our capital markets. They present good opportunities of increasing retail investors' base. We should try to reach out to every nook and corner. These are government stocks and are good companies with good track record. There is no question mark on the credentials of the companies. The important issue is price. Offer good discounts to retail. Do a 100 percent retail offering at a discount to the market price. There is enough interest in the retail to acquire these stocks and that is a sure way of enlarging our capital markets. We have been bemoaning the lack of number of investors in the market.

We have been saying that small investors are not participating in equity. The best way to get new investors and small investors into the market is through disinvestment route and the best way of doing it is to do a 100 percent retail offering at a discount to the market price. This is public wealth going back to the public. There will be no questions asked on the discount. Politically also this is a good move and the best way of going forward should be to offer these stocks at a discount to the retail.

Q: The other issue is about crossholdings. Will that be one route that government will try and push?

A: If the entire objective is fiscal deficit then you can use any of these methods - buyback, crossholding. I have always maintained that there is no strategic value that acquiring company is getting by 2 percent, 5 percent or a minimal stake in similar sector company.

They would not get a board position, they would not really be heard in terms of their requirements and there cannot be any compromise in terms of pricing or quality of raw material in case it is a raw material supplying company. So crossholding, if it is being sold as a concept that helps companies strategically, I do not agree with that and I think crossholding is not a good idea.

Any other method that we are looking at is purely aimed at meeting the fiscal deficit and we should do away with that objective. Let that be a by-product. Let that not be the primary object of a divestment. Let us concentrate on deepening our capital markets.

Q: Bharat Aluminium Company (BALCO) has received green light finally from the Law Ministry. Do you perceive any further bottlenecks on how much could it rake up for the government and what route will they adopt for BALCO and even for Hindustan Zinc (HZL)?

A: On both these sales my advice would be a closed auction. There are people who would like to acquire these stocks, these companies are doing well and there would be enough interest in the marketplace. We keep hearing of names like Indian Oil Corporation (IOC), Bharat Heavy Electricals (BHEL), HZL - these names had been hitting the headlines in last several years. We just keep dragging on. There has to be some kind of rethinking in terms of how you plan, announce and execute a deal.

The markets will keep changing. You can never hope that you will always maximise your returns. Even in these two cases, for example the government can also think in terms of a pure retail offering and a discount or do a strategic closed auction sale, but not use any other route that would not optimise the returns, nor help with the objective of enlarging the capital market.

Q: The other route which the government is looking at quite closely is the special dividend route. Do you think that special dividend will only come from Coal India or could they push other PSUs as well, because the interim dividend is already factored into the budget?

A: It could come in from companies beyond Coal India. It is not necessary that only Coal India may be required. Let us watch and hope that management is re-looked in a fresh manner. ETF is an idea that can be pursued because it is aimed at small investors. The sooner we launch it, the better it is, although retail investors would prefer direct investing into a PSU stocks rather than going through a vehicle or an ETF.

Q: Do you think divestment target will be met or how much will be met according to you?

A: Every year we have this disinvestment target announced in February during the Budget speech. We see almost the entire year passed by without any significant activity. The entire pressure builds up in the last quarter. We have seen a repeat of the same thing even this year. Rs 40,000 crore is no big amount. It can be achieved singly through SUUTI sale, however, with the kind of environment that we are living in, the kind of ministerial opposition we see, these divestments given the price beating that most of these stocks have taken, the government may again keep deferring and there is no obligation in any case to meet the disinvestment target.

However, given the requirement for fiscal deficit there would be a lot of pressure in terms of trying to raise some money. So, I expect that strategic sale in BALCO and HZL, SUUTI sale of Axis and maybe one or two FPOs could happen during this financial year and we can get Rs 40,000 crore. It is not a large amount to be worried about. There is enough investor appetite for a good company at a good price. Rs 40,000 crore is very small money and we still have almost three months left for this year. So the target can be met. I think we only have to plan and execute in a manner that we are able to achieve this target.