Divestment saga may go the Maruti way

The investment banking community en masse feels that a strategic sale followed by an IPO should be the ideal methodology for divestment of PSUs to extract the maximum valuation.

The success of Maruti IPO has brought back smiles to investors. This is the first instance of a PSU being sold first and then going the IPO way.

Says Uday Kotak, chairman, Kotak Investment Banking, and the book running lead manager to the Maruti IPO, "A strategic sale followed by an IPO is the model to follow for PSU divestment as it generates better valuations for the company and the government."

Naina Lal Kidwai, vice-chairman & managing director, HSBC Securities and Capital Markets (India) Pvt Ltd, also feels the same way. According to her, a strategic stake sale before an IPO is a better model as has been proved with Maruti because the markets tend to react positively as there is no ambiguity about control of the company. Hence, the prices go up and valuations are better.

"The government following this route is a very good option," she pointed out.

The Maruti issue was oversubscribed nearly 10 times and opened with a premium of 25.2 per cent.

The government has received Rs 993 crore by way disinvestment of its 27.5 per cent stake in Maruti and continues to hold 18 per cent. The government had earlier received Rs 1,000 crore as control premium from Suzuki Motor Corporation and Rs 2,424 crore by selling 23 per cent via the strategic sale route.

The government has formed the ministry of disinvestment in December 1999. This was to give impetus to the disinvestment plan. So far various methods have been used for disinvestment.

In the early '90s, minority shares were sold by the auction method in bundles of companies though eventually the bundling was abandoned.

The open auction method was followed up with global depositary receipt issues for VSNL and MTNL, domestic offerings with the participation of foreign institutional investors (FIIs) for GAIL and the Container Corporation of India

Since April 1991, 49 companies have been disinvested generating Rs 30,946 crore including amounts expected to be realised, control premiums etc for the government.

This includes Rs 11,266.23 crore generated post-2000 via strategic sales which has become the buzzword for the disinvestment ministry.