Nine PSUs planning public offers can generate 1.5-2 million accounts.
The coming initial public offers (IPOs) of public sector units (PSUs) have sparked a battle among top depository participants (DPs).
Nine PSUs are to hit the capital market with IPOs and follow-on offers (FPOs) this financial year as part of the government’s disinvestment plan. They will allot shares to employees at a discount to the IPO price. DPs are trying to corner these demat accounts of PSU employees.
At present, a few top institutions which are also major DPs, including Stock Holding Corporation of India (SHCIL), UTI Securities, State Bank of India and United Bank of India, are said to be lobbying hard for demat accounts of Coal India Ltd (CIL) employees. CIL has close to 400,000 employees and it will reserve one per cent equity of the IPO for them, say market players.
The government is estimated to raise Rs 12,500-15,000 crore by diluting 10 per cent stake (selling 631 million shares) in CIL. The IPO is likely to be announced around Diwali. “The senior management of CIL is of the view that every employee of the company should be given an opportunity to apply in the IPO. Even the lowest paid mine worker in CIL has a PAN card,” said a source from a DP involved in conducting investor education camps for these workers.
A depository holds securities in an electronic form and enables transactions through book entry by a DP, who acts as an agent of the depository and offers services to investors. National Depository Services Ltd and Central Depository Services Ltd have conducted investor awareness camps for CIL workers and are having negotiations with DPs.
Competing offers
The competition is so intense that DPs are offering to open accounts for free and waive maintenance charges for the first year if they get a mandate for “bulk” demats. Some DPs have even tried to lobby with the coal ministry and the bankers to the issue. CIL has got proposals from 36 DPs. Sources say SHCIL may get a major chunk of the accounts. SHCIL gets its clout from the fact that it is the largest custodian of government pension funds, Life Insurance Corporation’s debt and securities portfolio and a central record keeping agency for the e-stamp project.
The bulk demat accounts of PSU employees have some characteristics. The maintenance cost is almost nil, as a majority of PSU employees don't trade regularly and maintain a single stock portfolio. The accounts will not be linked to the internet and the cost incurred to follow the know-your-customer rules will be offset, as employees will have an endorsement either from the human resource department of their companies or the workers union. Most important, the DP which corners a large chunk of accounts, which is otherwise difficult as market penetration in India is thin, has a better negotiating power for future business and may use it to boost the company’s valuation.
According to rough estimates, the nine PSUs can easily generate 1.5-2 million demat accounts. Considering that DPs will levy a minimum annual maintenance fee of Rs 200 per account, after a waiver for the first two years, it gives them nearly zero cost and a risk-free business of Rs 30 crore annually from only nine IPOs. DPs normally charge Rs 300-600 annually.