Govt dilutes norms for appointment of I-banks for share sale of state-run cos

NEW DELHI: The department of disinvestment has diluted a key clause that deals with conflict of interest for the appointment of investment banks for the sale of share of state-run companies.

Less than a month after it banned investment banks involved in public issues of state-run companies from working with private sector competitors, the government has now allowed them to do so provided they share the name of these companies.

In case the government feels that they cannot work on the sale shares of both the state-run as well as private company, these banks will have to resign from one.

“These i-banks need to keep the government or the state-run companies informed about any mandate they have entered into, which is engaged in the same line of business as that of the company being disinvested,” a senior official in the department of disinvestments said.

The government has been forced to make this change as it discovered that the conflict of interest clause effectively disqualified all investment banks from being eligible for applying for the mandate for the National Building Construction Corporation IPO.
The government had banned bankers managing public sector floats from simultaneously handling offers of private firms in the same sector to avoid any conflict of interest. It had also restrained the bankers from advising any company in similar areas until the stateowned enterprise’s disinvestment process was complete.

The government’s contention was that a private firm’s share sale ahead of a state-run firm operating in the same sector would affect the success of the later issue. The government has now extended the date for submission of expression of interest (EOI) for the National Building Construction Corporation IPO to June 15.

In the guidelines announced last month, the disinvestment department had stated that these banks needed to certify that they were not advising a company engaged in the same line of business as that of the company for which they were submitting the bid.

After getting a mandate from state-run companies, these banks were asked to give an undertaking that before accepting any mandate from private companies engaged in similar areas, these bankers will take written permission from the management of the state-run companies or department of disinvestments.

However, the diluted norms allow them to accept mandate from the private sector and inform the government subsequently.