PSU public offerings: A win-win for all. Prithvi Haldea PRIME Database. The PSU CEO Conclave Exploring Capital Market Opportunities Organized by BSE Kolkata, 27 March 2009.
The PSU CEO Conclave
Exploring Capital Market Opportunities Organized by BSE
Kolkata, 27 March 2009
Change in the government in May 2004 changed all that.
While stated intentions of majority in the government were noble on the divestment front, compulsions of coalition played mischief.Serious divestments were in sight…
However, urgent need to evolve a national consensus for PSUs on
- part divestments, where post-offer control
shall still substantially rest with the
- raising of fresh capital from the market for
expansion programmes.Going forward
Listing helps in better corporate governance and efficiencies
Fresh capital helps in modernization/ expansion/ diversificationBenefits the PSUs
Losses on PSU scrips are lesser.Benefits the capital market
- (In a country of over 100 crore, we have
only about 1 crore equity investors.)
- (Less than 5% of household savings is
moving into the capital markets)Benefits the economy
There is nothing called an “opportune time”.
With credentials not under question and with right pricing, investor response is assured.
PSUs/Government should not await the revival of the market to float the PSU IPOs in the hope of getting better valuations. Private promoters can be greedy, Government should not be.Will help revive the capital market
Remember that it was a PSU divestment- Maruti in June 2003- that had earlier led the recovery of the market.
Investors have to be brought back to equity.
- enlarge investors’ base and the capital
- revive the market sentiments, and
- raise money that it so desperately needs.
Part divestment-cum-fresh capital offering (like NTPC)
Only fresh capital raising (like PFC)3 types of PSU public offerings
These are public enterprises and benefits of divestments should belong only to the public.
Moreover, this policy would be politically correct.Only to the retail investors…
It has now been clearly demonstrated that the domestic retail appetite is literally infinite for good offerings.
This may not maximize returns for the government. However, wealth created by public enterprises through domestic public resources should be shared rightfully only with the public.At reasonable prices…
Significantly, there would be no post-listing pressures/embarrassments. The PSUs would forever be in the Thank You list!
- This will have another positive impact: a
very wide distribution reduces post-
listing selling pressure; large sales by
institutional investors often destabilize
the prices.As widely distributed as possible…
They would be saved from the hassles of opening demat accounts.
They would also save on custodial charges; many investors may like to hold the “family silver” for long periods.
Only for selling, demat account may be mandated.With physical mode,if desired…
- This will have another positive impact:
Labour Unions would not act as a
deterrent/ become instruments for
negative media coverage.And, with ESOPs/employee reservation.
Government paper offers to the retail investors the ‘safety of capital’ that they want and the comfort that PSUs will not go overboard on pricing.No question marks on credentials
Such appointments take unnecessarily long time (as was seen in NHPC/Oil India, forcing them to defer their IPO by more than 1 year, and when they became complaint, the market conditions have forced them to defer. As such, 2 good IPOs that could have happened did not).
Some of these directors may not add value.
PSUs, unlike private sector companies, are subject to much more additional audit like CAG, Parliament ,CVC etc.Relaxation 1Removal of Independent Directors clause
Compliance of this clause, if at all, can be insisted upon only if the appointment of independent directors is left in the hands of the Chairman/Board of the concerned PSU.
10% or 25 % public holding requirement may not be possible on both initial and continuing basis due to size/political considerations.
Recent moves to have a standard minimum public holding should be opposed.Relaxation 2Relaxations in initial and continuing public holding % requirements
In any case, IPO grading has proved to be futile.Relaxation 3Do away with IPO grading
Explain to them the benefits to them due to listing.Engage intensively with the labour unions/employees