Divest to retail alone
Govt has abandoned a modified version of French auction in favour of the traditional form of book-building , for sale of 33 crore odd shares of NMDC.
By ET Bureau |
The government has abandoned a modified version of the French auction in favour of the traditional form of book-building , for the sale of 33 crore odd shares of National Mineral Development Corporation. No part of the public offer proceeds go to the company to fund its businesses.
So, it is logical that a larger float should depress the stock’s valuations — there is some basis for the prescribed price band of Rs 300-350, below the traded prices of recent weeks of Rs 450-500. Coupled with 5% discount for retail investors and employees, this should make the issue attractive for retail investors for whom 35% of the issue has been earmarked.
However, price discounts alone will not encourage the uninitiated investors to channel their savings from safe instruments such as bank term deposits or post office savings into riskier assets such as equities. There are two main reasons for offering shares to retail investors : widen the equity ownership base of listed public enterprises and spread the share-owning culture among the public. If these objectives were not present, the government only needed to have a private placement, and would get a better price too, determined by qualified investors who would presumably know how to value shares.
However, to spread the equity culture among the public, as well as to widen ownership of shares in PSUs, the government should launch a countrywide campaign targeting all individuals who have some form of financial savings. This was pretty much what Margaret Thatcher accomplished in the UK during the 80s. Also, there is a case for offering the entirety of the divested shares to retail investors, at a discount to the traded price.
A retail focus will surely depress the government’s earnings from selling its holdings in public enterprises. But revenue maximisation should not be the primary consideration of divestments. Rather, it has to be enhanced liquidity, wider shareholding of individual companies, a more broad-based capital market and all the benefits that derive from these.
So, it is logical that a larger float should depress the stock’s valuations — there is some basis for the prescribed price band of Rs 300-350, below the traded prices of recent weeks of Rs 450-500. Coupled with 5% discount for retail investors and employees, this should make the issue attractive for retail investors for whom 35% of the issue has been earmarked.
However, price discounts alone will not encourage the uninitiated investors to channel their savings from safe instruments such as bank term deposits or post office savings into riskier assets such as equities. There are two main reasons for offering shares to retail investors : widen the equity ownership base of listed public enterprises and spread the share-owning culture among the public. If these objectives were not present, the government only needed to have a private placement, and would get a better price too, determined by qualified investors who would presumably know how to value shares.
However, to spread the equity culture among the public, as well as to widen ownership of shares in PSUs, the government should launch a countrywide campaign targeting all individuals who have some form of financial savings. This was pretty much what Margaret Thatcher accomplished in the UK during the 80s. Also, there is a case for offering the entirety of the divested shares to retail investors, at a discount to the traded price.
A retail focus will surely depress the government’s earnings from selling its holdings in public enterprises. But revenue maximisation should not be the primary consideration of divestments. Rather, it has to be enhanced liquidity, wider shareholding of individual companies, a more broad-based capital market and all the benefits that derive from these.
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