November 26, 2013 / 18:50 IST
The government had set FY14 divestment target at Rs 40,000 crore but it failed to raise even Rs 1,500 crore. With only four months left in the fiscal, there were some talk that the divestment department is looking at exchangeable bonds to raise funds.
Prithvi Haldea, Managing Director of Prime Database speaks to CNBC-TV18 on the issue. He says there's a possibility of a pick-up in divestment activities in the last quarter and he has no doubt that the market has appetite for public offerings. But divestment target is unlikely to be met.
Below is the verbatim transcript of the interview:Q: What is your sense on how the government will be able to wade through the next four months given that time is running out and they have hardly met their target?A: I am as concerned as you are but historically if you see divestments tend to happen only in the last quarter of the year. It is surprising that we are not able to move forward at all in the first eight-nine months and typically February-March see a lot of offerings. You are right that the target for this year – we have not even scratched the surface, Rs 1,300 crore against the target of Rs 40,000 crore plus the additional Rs 14,000 crore to be raised through residual sale. So we are nowhere near the target.
It is not that there is not enough pipeline, I think the list is long for both listed companies that can be diluted and the large number of initial public offerings (IPOs) of PSUs that are in the pipeline. We have had all kind of modes being discussed whether it is exchangeable bonds, ETFs, buybacks. Then on the other hand, we have had a lot of ministerial objections to a lot of divestment where the concerned ministries either for some reason do not agree with the dilution or the market is not conducive to obtaining a valuation they want. So a variety of factors has led to a situation where we are far off from the target. Will this money be raised in the next four months? Surely, there is a huge hunger for good quality stocks at the right price. The Indian IPO market has been dead for the last eight-nine months, we have had just one IPO, there have been no follow-on public offers (FPOs), public offerings have been absolutely out of the window. So there is definitely an appetite and hunger, the markets are reasonably good.
Q: Look at the two issues on offer, Coal India and Indian Oil both of them ridden with a fiscal responsibilities; at least Indian Oil is. Do you think at this current juncture, Indian Oil will get a good response at all or will the shadow of the fisc damage the performance?A: It is all linked to the price. These are listed stocks and all these sectors are already discounted in the market price. When you make an offering, obviously you will have to look at discount to the current market price because there would not be enough appetite on the price similar or higher than the market price. For that reason I have been arguing for long time that for listed stocks, we should go for a close auction and not be so dependent upon the current market price because there could be a demand from long-term institutional investors to buy large quantities of this stock at a price even higher than the market price. They may see value going upwards. Every PSU for that matter has some problem or the other and you know that there is a governmental interference, there is a ministerial interference and there are issues of corporate governance. For example, Coal India has not had independent directors for a long time, basic requirement to even come to the market. So these issues are all known and people expect even more surprises on the negative side.
Q: These issues are known as you pointed out and it seems very unlikely that many of these issues will get resolved. Coal India has its own trade union strike in the month of December opposing the divestment etc; but the divestment department is now looking at exchangeable bonds in order to raise funds. What are your thoughts on that and whether that could help in anyway?A: My view on divestment has been very simple from the beginning. I have been saying that divestment should not be looked upon purely as a deficit filling mechanism. Divestment should be looked at to enlarge and deepen our capital markets. We keep crying about lack of retail investment in the market. PSUs present a great opportunity because at least for every investment you have to look at two things, the company and the price. As far as the company is concerned, at least there are no fears in the investors' minds that these are no fly by night companies, that they don’t have a track record. They are all established companies with a huge track record. Their issue is the price and therefore if you price them right, you can raise any amount of money. So the good message should be to go to the market to get more retail investors and I have been saying this for IPOs. We should look at 75 percent reservation for retail at a discount to the price, which is discovered.
This is an anonymous allotment to an anonymous investor, Rs 50,000-1,00,000 you can allot, there is no chance of duplication because now you have demat accounts and PAN numbers and that is a great way of enlarging the market place. But we are looking at buybacks, we are looking at ETFs, we are looking at all kinds of instruments which are not going to help.
Q: Realistically how much do you think they will garner before March 31?A: They can garner all of this. We have seen the government get into action but at this point of time, given the political climate, given all kinds of opposition from the ministries, and the valuations (despite whatever the market may say, are not what they should be) my sense is that we are going to have a great shortfall this year as far as divestment is concerned.
