 "Market ready to soak Suuti sale")
The money involved is around Rs 60,000 crore, with a major chunk being Axis Bank (Suuti’s stake in it is 11.53 per cent), ITC (11.14 per cent) and Larsen & Toubro (8.15 per cent). Is the market ready to absorb money of this nature?
Yes, say most participants. “Liquidity is not an issue, especially when we are talking about companies with quality management and which have a demonstrated track record,” says Deven Choksey, managing director, KR Choksey Investment Managers.
G Chokkalingam, founder, Equinomics Research and Advisory, adds that now is a good time for the government to explore stake sales of this nature. “Foreign investment inflows are also improving of late and we have seen how many large-cap stocks have changed hands in the past without any significant disturbance to their stock price,” he said.
With faith returning in Indian equities, experts feel Suuti has more options to offload its stake. However, for the market to be jubilant about the divestment, the mode adopted for sale would be crucial. Some market participants believe the chances of rendering the shares of Axis, L&T and ITC in the open market though an Offer For Sale (OFS) appears strong, as this method is largely being adopted by the government to hive off stake in state-owned entities. “If the OFS route is adopted, we could see FIIs (foreign institutional investors) largely turning buyers into these (three) stocks,” says U R Bhat, managing director, Dalton Capital Advisors.
However, OFS tends to impact stock prices in the near term, as shares are typically offered here for sale at a discount (of two to five per cent) over the market price.
| BREAKING DOWN THE BUZZ |
| THE STAKE SALE After years of mulling over sale of stake held by Suuti in listed entities, the government finally appears to be going for it Rs 60,000 cr Is the money involved in the stake sale. Most of it is made up by stake held by Suuti in Axis Bank (11.53%), ITC (11.14%) and L&T (8.15%) IS MARKET READY TO ABSORB THIS BIG MONEY? Yes, say analysts, since shares are of companies with good track record HOW WILL SUUTI SELL ITS STAKE IN FIRMS? Some say offer for sale (OFS) as this method is being adopted by the government to sell its stake in state-owned entities BENEFITS AND DOWNSIDES OF OFS Foreign investors could lap up stocks. But, OFS tends to impact stock prices in the near term as shares are offered at a discount (of 2-5%) to the market price SUUTI COULD ALSO GO FOR A BLOCK DEAL A block trade involves a significantly large number of stocks or bonds being traded at an arranged price to lessen the impact on the security price. Suuti has gone for it in the past IF BLOCK DEAL DONE, THEN... Any big-money investor, including domestic and foreign institutions, can participate in block deals |
Given Suuti’s precedence of structured deals, experts are divided. In May 2014, when the government mopped Rs 5,500 crore from a nine per cent stake sale in Axis Bank, Suuti offered its holding in the block deal window. A block deal is where a minimum quantity of 500,000 shares or shares with a minimum value of Rs 5 crore are traded through a single transaction at an arranged price, to lessen the impact on the security price. Such trades happen on a special deal window, opened for 35 minutes in the morning trading hours. Bhat suggests Suuti should again adopt its tested method.
Shishir Bajpai, senior vice-president, IIFL Wealth Management, agrees. “Given that investment bankers may be appointed to manage these deals, there are high chances that the deal be structured as a secondary market placement,” he adds. If this method is adopted, Life Insurance Corporation of India could be a significant ‘buyer’ of these shares, while FIIs also tend to participate in block deal transactions. Also, these deals happen at predetermined prices. Bhat suggests that as shares of Axis, L&T and ITC were taken over by SUUTI from the erstwhile US-64 scheme of UTI, as strategic investment (to bail out investors of that scheme), it is unlikely the government would entirely give up its holding in these stocks.
THE STORY SO FAR
- Oct ‘02: UTI (Transfer of Undertaking and Repeal) Act passed
- Jul ‘03: Notification of Suuti scheme that governs the management of assets, redemptions, investments, etc
- May ‘03: Foreclosure of US 64, the country's first MF scheme; 2 options: Cash or 6.75% US 64 bonds
- Mar ‘04: 6.6% ARS bonds issued as part of redemption of other Assured Returns Schemes that came under Suuti
- Jan ‘08: Winding-up date; extension given till March 2009
- Aug ‘08: Suuti appoints merchant bankers to sell Axis Bank stake
- Sep ‘08: Lehman Brothers collapses; sale shelved
- 2008-09: US 64 bonds and ARS bonds redeemed
- Jul ‘09: 5-year extension for Suuti
- Mar ‘12: Plan to float NFHCL; Cabinet clearance to wind up Suuti
- 2014: Part stake in Axis Bank sold
- Mar ‘15: Suuti stake sale part of divestment target of Rs 69,500 cr
- Jul ‘16: Foreign investment cap on Axis Bank raised by 12%
Sources: News reports, suuti.in, annual account statements, notices