With disinvestment programme yet to pick up steam, foreign institutional investors (FIIs) today sought from the government some kind of preferential treatment for them in the sale of stake in India’s public sector undertakings.
A delegation of FIIs, led by JP Morgan, met finance ministry officials — and said their bringing money to the country in dollars was virtually under-recognised, as they continued to be allocated shares on a pro-rata basis as nothing more than qualified institutional buyers (QIBs). They wanted this mechanism to change, officials said.
On its part, the ministry asked them to specify ways for the FIIs — the registered ones in the country total 1,700 — to enjoy preferential treatment. “We asked them to submit us a report on the matter, mentioning the (pertinent) practice in other countries,” an official told Business Standard later. Only after their demands become specific can the ministry formulate its views, he added.
Of the disinvestment target of Rs 40,000 crore this financial year, the government has raised a little over Rs 1,100 crore from the Power Finance Corporation sell-off. Even so, the ministry has time and again exuded confidence that it would meet the target. Analysts, though, doubt this optimism, given that 2011-12 has only a little over four months left to end.
Typically, in an initial public offer or a follow-on public offer, half the issue is reserved for QIBs, which includes FIIs and mutual funds (who also have a separate five per cent reservation) among others. For high-networth individuals, 35 per cent of the issue is reserved. The rest 15 per cent is for retail investors.
A book-building mechanism permits the issuer to announce a price band. Within that, applicants are free to submit bids. All the bids that are submitted at or above the issue price are allotted shares on a proportionate basis. In other words, a higher quantum of over-subscription would mean lesser number of shares allotted to the successful applicants.
Issues generally also include a separate portion for employees of the companies and their subsidiaries. Historically, however, the employee quota has remained under-subscribed. As for the balance shares, they are allotted proportionately among other categories of applicants.