To maximise proceeds from the five big-ticket disinvestments on the anvil, the government has now proposed to reduce the reservation for retail investors in the forthcoming offer for sale (OFS) issues to 10 per cent from up to 20 per cent approved earlier by the Cabinet Committee on Economic Affairs (CCEA).
The government has also proposed not to go for an upfront discount of 5 per cent as was approved earlier by the CCEA in a bid to minimise the arbitrage opportunity for retail investors which it feels “potentially” impacts the institutional demand.
With less than two months to go for the financial year to end and the government still short by Rs 19,105 crore to meet its disinvestment target proceeds of Rs 43,425 crore, a draft note for the CCEA prepared by the disinvestment department and circulated to secretaries of eight departments including the ministries petroleum and finance has called for early comments from them citing “closing of the financial year and the urgency of the matter”. It further said that in the absence of comments, the note will be sent to the Cabinet Secretariat for placing it before the CCEA for consideration.
On the issue of upfront discount to the retail investors, the draft note said, “It is proposed that the retail discount will be approved by the Alternative Mechanism based on recommendation of High Level Committee (HLC) in all cases approved by the CCEA keeping in view the market condition at the time of OFS.”
Giving a rationale for proposal to withdraw upfront discount to retail investors, the note dated February 2, said that the differential pricing provides arbitrage opportunity for retail investors. “The differential pricing can potentially impact the institutional demand for the offering given the expected pressure on post-issue stock price performance,” the note said.
While the CCEA has already approved disinvestment of government stake of up to 11.36 per cent in ONGC, Power Finance Corporation, Rural Electrification Corporation, NHPC and MOIL keeping the retail reservation at 20 per cent of issue size (except for MOIL at 10 per cent), the disinvestment department has now proposed to bring down the retail reservation at 10 per cent for all these issues seeking the constraints retail investors face while participating in the OFS.
“The capacity of retail investors to participate in OFS is constrained by the availability of the limited window opening on the day of OFS and further the participation of retail investors is limited to the available universe of demat accounts…. It is therefore proposed that the reservation to the retail investors may be restricted to the 10 per cent of offer size in all disinvestment proposals,” said the draft note.
The recently concluded Coal India OFS on January 30, 2014 saw timid response from the retail investors. While 20 per cent of the issue size was reserved for retail investors at a discount of 5 per cent, the retail portion of the issue was subscribed less than half at just 44 per cent.