The government today revised the rules for appointment of investment bankers for the Rs 40,000 crore disinvestment programme. This is the second time in a month the government has changed rules as the earlier amendment, which puts severe restrictions on bankers, didn't find many takers among the bidders.
The new rules considerably toned down the restrictions concerning banks handling deals of companies in the same line of business as the divesting entity.
“The interested parties would also be required to submit a list of or disclose any mandated transactions, which are in the same line of business as that of the company (being disinvested),” a finance ministry memorandum dated June 8 said.
The new rules came into effect as part of the revised request for proposal floated by the Department of Disinvestment for the initial public offer of National Building Construction Corp Ltd.
It may be recalled that the last day of bidding for the NBCC IPO had been extended for the second time to June 15 from May 26.
The rules require that the bidding bank has to confirm in writing that there exists no conflict of interest as of the date of submitting its proposal for appointment. The banks also have to undertake that “in future, if such a conflict of interest arises, the adviser would immediately intimate the government/company (being disinvested) of the same”.
Earlier the government wanted the banker to give an undertaking that they were not handling any transactions in the same line of business at the time of bidding for the divestment mandate. It also said the banks once appointed would need prior government approvals to take any new mandate in the same line of business.
This rule effectively ruled out some 22 top investment banks, which were handling other real estate issues from bidding for NBCC IPO mandate. Even after extending the initial deadline from May 26 to June 10, the bankers did not evince any interest, forcing the latest change of rules by the department of disinvestment.
A senior official with a domestic investment bank said the conflict of interest rules should take into consideration the deals done by foreign banks in other countries also. “If the concern is that they are selling to the same investors overseas, even foreign deals should be brought within the ambit of the rules. Otherwise it will be unfair for the local banks.”
A foreign investment bank however said that such an argument may benefit the domestic banks, but is not practical. "There is no logic," he added.
