Small Investors may Get Bigger Share in PSU Floats

Disinvestment Dept Set To Push For Higher Retail Quota

THE department of disinvestment plans to pitch for a higher quota for retail investors in forthcoming share sales at state-run companies, as it looks to use the buzz generated by the Coal India IPO to take equity culture to Indian households.
Existing norms stipulate that at least 35% of the shares offered in a book-built share sale, where investors are asked to bid in a pre-decided price band, must be reserved for retail investors.
The retail portion of the Coal India offer was subscribed 2.31 times, providing a fitting backdrop for an increase in the quota for retail investors.
The idea is to share the wealth of public sector companies with the public, said a senior finance ministry official. With more purchasing power in the hands of retail investors, we expect good response from them, he said, requesting anonymity.
Sebis decision to double the retail investment limit in public offers to 2 lakh from 1 lakh will help small investors benefit more from higher reservation. However, the increase in retail quota is likely to be done on a case-to-case basis, after consulting the company concerned and the administrative ministry.
Weve not yet decided on this. A final call will be taken only after discussions with the PSU concerned and its administrative ministry, the official said.
Indications are that all stakeholders may not be receptive to the idea for fear of poor retail response to the offer. Why reduce the qualified institutional bidder (QIB) portion Some of these investors are large funds, which invest in a company for a longer term. Sacrificing them for more retail participation makes no sense, said a senior public sector executive, who asked not to be named.
The move is aimed at sharing public wealth with small investors, spreading equity culture to a wider population, and broad-basing the market.
Jagannadham Thunuguntla, strategist at SMC Global Securities, sees nothing wrong in a higher quota for retail investors. If unsubscribed, the retail portion could go to high net worth individuals (HNIs) and QIBs. If the government wants to provide more room to retail investors, that is perfectly all right, he said.
In 2009-10,public offers from PSUs, including that of power producer NTPC, received lukewarm response from retail investors. The retail portion of the NTPC offer was subscribed just 0.16%.The offers from REC and NMDC also met the same fate, with their retail portions failing to attract enough investors. Market analysts attribute this to aggressive pricing. All these issues received an overwhelming response after the government cut the offer price.
Even for Engineers India and Satluj Jal Vidyut Nigam, the retail portions were subscribed three times over, the official said, making a case for an increase in retail quota.
Given the budgeted divestment target of 40,000 crore, state-owned companies will be the biggest issuers in the current financial year. Some of the major companies expected to hit the market this year are ONGC, IOC and Steel Authority of India.

MOVE FOR EQUITY

Move to increase the quota for retail investors is aimed at sharing public wealth with small investors, spreading equity culture to a wider population, and broadbasing the market

However, the increase in retail quota is likely to be done on a case-to-case basis, after consulting the company concerned and the administrative ministry Existing norms stipulate that at least 35% of shares offered in a book-built share sale must be reserved for retail investors,50% for QIBs & 15% for HNIs.

Economic Times, New Delhi, 27-10-2010.