Selloff dept plans quality check on i-bankers

NEW DELHI: Stung by the poor investor response to stake sale in NTPC, REC and now NMDC, the disinvestment department will review the performance of investment bankers in the earlier public offerings managed by them before it gives them the mandate for steering stake sale in a public sector enterprise (PSE).

This will be one of the key criteria in the new selection norms that are being currently prepared by the department for appointing investment bankers. Under the new set of rules being considered, 70% weightage will be given to the quality aspects of a participating investment bank and only 30% to the cost or transactions fee quoted.

At present, investment banks are selected purely on the basis of their bids. The department hopes that the new norms will prevent the aggressive bidding by banks for managing stake sales and ensure that even smaller players are able to compete.

“As part of the new norms, we will assign weightage to the performance of previous IPOs and FPOs managed by merchant
banks. We will review what kind of targets were set for subscription in these offers and what was actually achieved,” a senior finance ministry official said.

The proposal follows poor response to the recent public offers by National Thermal Power Corporation (NTPC), Rural Electrification Corp and NMDC, which has left the department concerned about the success of the government’s stake sale programme.

The government has budgeted Rs 40,000 crore from stake sale PSEs in 2010-11 and its fiscal math could go awry of the target is not met. The fiscal deficit for 2010-11 is pegged at 5.5% of GDP. The NTPC and NMDC offers had to be finally rescued by public sector banks and insurance companies as most retail and high net worth investors stayed away. While many factors, including poor market sentiments, were considered responsible for the low subscription, the role of the merchant bankers for suggesting the auction route as well as for the high valuations was also questioned.

The data on previous offers can easily be obtained from the Registrar of Companies or the market regulator Sebi. “It
will also make the process of appointing merchant bankers more transparent and fair,” he said.

The issue was discussed on Friday in an internal meeting of the department to work out the selection norms. It is hopeful that the new norms will be finalised by the month end after being vetted by the Central Vigilance Commissioner. They will be used for selecting merchant bankers for all PSU offers from 2010-11.