Govt may have to rework floor price for PSU sale

MUMBAI: The spurt in the stock prices of various public sector companies that are up for privatisation may result in further delays in the sell-off process. Investment bankers say the evaluation committees, set up by the government, are now being forced to take into account the enhanced market valuation before calculating the floor price reserve. They say the upward revision in the floor price could make it harder to attract bids.
Over the past few months, scrips of all PSUs that are being divested have shot up substantially on expectation that the company under a new private management will be valued higher. Some of the scrips like Dredging Corporation of India (DCI), Hindustan Petroleum (HPCL) and Shipping Corporation of India (SCI) have shot up 100-300 per cent over the last two years, after the government announced its divestment plans.
Apart from the stock price, the actual valuation of the company undertaken by the global advisor, market dynamics and imminent collapse of monopolies play a vital role in fixing the reserve price, said a divestment advisor. The company’s floor price could vary depending upon the business it is involved in.
An official from one of the investment banks handling the divestment of SCI, said the jump in SCI’s share price will definitely impact the floor price and the bidders will find it hard to match the price. “It will be perceived as politically incorrect if the government fixes the floor price much below the market price,� said another official.
In order to ensure a foolproof process, removing all possibilities of tampering, the government has insisted that global advisors are not made a part of the process while fixing the reserve price. The global advisors are supposed to make a detailed presentation before the evaluation committee on the business valuation as also their recommendation of what should be the reserve price.
Reserve price is generally fixed only after the bidders submit their financial bids and the evaluation committee is not permitted to take a look at the actual price bids before arriving at the reserve price.
According to the procedure, the final floor price is recommended by the inter-ministerial group (IMG), after analysing the figure arrived at by the evaluation committee. IMG can have a different opinion as to the reserve price, but detailed reasons are recorded in the minutes.