The Union government has removed a condition that required at least two out of four international merchant banks to manage an initial public offer of Hindustan Aeronautics Ltd.
The condition was part of a fortnight-old original request for proposals (RFP) floated by the Department of Disinvestment (DoD), which handles share sales for the government. The revised RFP calls for a total of four banks, without specifying their lineage. Interested merchant bankers will have to submit their bids by tomorrow (Tuesday).
Officials say the move will give the government the flexibility to choose domestic banks for all four slots, if there are not enough applications from among foreign banks. “The process has been simplified,” notes an official. “We expect a few foreign merchant bankers to apply. But the change is to make doubly sure that there is not any shortfall.”
Foreign investment banks come in handy while marketing the issues to foreign institutional investors. Their overseas presence and familiarity with the needs and psychology of FIIs ensure that the issue smoothly sails through international roadshows, according to some bankers. Others wonder why the condition was put in the RFP in the first place at all. “If the change was for flexibility, then it is okay. But if it was due to preference for a particular type of bankers, then it does not make sense,” says Prithvi Haldea, CMD, Prime Database Ltd. “Over the years, even domestic bankers have demonstrated their abilities in managing issues of all sizes.”
However, many foreign banks have not been too keen to manage public-sector share sales, especially the smaller ones. Reason: these do not earn them a fee. No foreign bank bid for the mandate of National Building construction Corp Ltd.
The merchant banks for government share sales are selected by DoD through a two-stage process, which includes a technical and a financial round.
Bidders who clear the technical round are asked to make the financial bids. The bidder who quoted the lowest fee (L1) wins the mandate and other bidders are required to match the fee quoted by L1 bidder. All the selected banks would have to match the price quoted by the winning bidder. In a bid to win the mandates, which are considered prestigious and add to league tables, some merchant banks quote ridiculously low fees, forcing others to follow suit.
The Bangalore-based defence major is planning to raise between Rs 3,000 crore and Rs 4,000 crore, according to market estimates. Investment bankers say since the issue is fairly big and will reflect in league tables, there will be good response from merchant banks. The move to relax conditions appears precautionary, says a banker.
Those in the race for the issue include major domestic banks like ICICI Securities, SBI Capital Markets, Edelweiss, IDFC, IDBI capital, Enam Securities and Kotak Mahindra, sources inform.
The government is considering the disinvestment of 10 per cent paid-up equity share capital of the 1940-founded aerospace company comprising 120,50,000 shares of Rs 10 face value each — through the IPO. The RFP says the company and the ministry of defence will, in order to make the shares more affordable to the investors, consider issuance of bonus shares before the proposed disinvestment.”
HAL’s major supplies/services are to IAF, Navy, Army and Coast Guard. The company exports equipment to 20 countries. HAL is a major partner for the Space Vehicle programmes of ISRO. It has also diversified into industrial and marine gas turbine business and real-time software business.
HAL, which got a Navratna status in June 2007, currently has 19 production divisions and 10 research and design centres co-located with related manufacturing divisions for synergy.
