Zero Fees to End as India Tightens Rules for Record Sell-Off
India plans to accelerate sales of state assets to about one a month and tighten requirements for investment banks competing to arrange the $8.8 billion sell-off, according to the official overseeing the divestment program.
Investment banks will need to prove their expertise at managing share sales locally and overseas as offering the lowest fee won’t assure them a mandate, Sumit Bose, secretary of the department of disinvestment, said in an interview in New Delhi. Stakes in Steel Authority of India Ltd., Engineers India Ltd., Coal India Ltd., and Hindustan Copper Ltd. may be sold in the next 12 months, he said.
“We had some cases where the banks bid at zero fees and the department was more than unhappy with that kind of approach,” Bose said. “We are looking at tweaking the rules to ensure that we continue to make a good selection” without attaching too much importance to fees, he said.
Prime Minister Manmohan Singh expects to sell more stock than the combined fund-raising by all previous administrations, giving investment banks an incentive to compete for business. UBS AG, Kotak Mahindra Capital Co., and Citigroup Inc. will extend their lead as the three biggest arrangers in India this year when state-run NMDC Ltd. completes its offering this month.
India is accelerating sales by 60 percent for the year starting April 1 to tap investors’ appetite for stocks after the benchmark index doubled in the past 12 months. Indian equities may lead emerging-market shares as economic growth accelerates, Templeton Asset Management Ltd.’s Mark Mobius said March 1.
National Assets
“We are divesting a part of the national assets and creating another set of new assets in both urban and rural areas,” 55-year-old Bose, who has a Master’s from the London School of Economics, said. The funds raised will be used in building roads, power plants and infrastructure, he said.
Spokespeople at the investment banks didn’t immediately respond to e-mail enquiries.
A panel of ministers is scheduled to meet in New Delhi today to decide the price for shares of NMDC, the nation’s largest iron-ore producer. That sale, which opens March 10 and ends March 12, is also being managed by Edelweiss Capital Ltd., Morgan Stanley and RBS Equities (India) Ltd., according to a Feb. 19 sale document.
The government is also likely to sell a stake in Satluj Jal Vidyut Nigam Ltd. in April, Bose said. JM Financial Consultants Pvt., IDFC-SSKI Ltd., IDBI Capital Market Services Ltd. and SBI Capital Markets Ltd. were hired to manage the sale, according to share-sale documents filed with regulators on Feb. 26.
Curb Demand
Accelerated sales of government-controlled companies are unlikely to curb demand for stocks of private-sector companies, said Bose, who assumed charge as the top official at the department of disinvestment on Feb. 1.
“As state-run companies hit the market, I think there is enough play for the private companies,” Bose said. “There is no concern that we are crowding out the need of private companies.”
Foreign fund inflows into India’s stock market climbed to a record 834.2 billion rupees in 2009, surpassing the level reached two years earlier in local currency terms, as the biggest stock market rally in 18 years lured overseas investors.
India’s Sensitive Index climbed 81 percent in 2009, making it the third-best performing benchmark in Asia, as the economy weathered the global recession. The gauge has fallen 2.7 percent this year.
The Bombay Stock Exchange’s BSE-PSU Index of 48 state-owned stocks climbed 81 percent last year after Singh’s Congress party won a second five-year term in May without the support of communist allies who had thwarted previous attempts to sell state-owned assets.
Singh in November changed a rule allowing sale proceeds to be used to fund social programs and infrastructure, helping trim the budget deficit. Previously the government had to invest the money in bonds and stocks.
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