The government is likely to appoint six merchant bankers, including the lowest bidder Citigroup, that have been shortlisted for managing the initial public offer of state-owned Coal India Ltd (CIL) within a few days, according to market sources.
Sources close to the development said that the other five shortlisted bankers -- Deutsche Bank, Morgan Stanley, Enam, Kotak Mahindra and DSP Merrill Lynch -- are expected to match the "near-zero" fee bid of the Citigroup because of the high profile and size of the CIL IPO.
Sources said that as against the global norm of 3-5 per cent fee that bankers charge for managing IPOs, Citigroup has bid a tiny fraction of the estimated size of the issue (around Rs 12,000 crore) so as to ensure that a commercial contract can be signed.
"There has been an instance, or two, where government has rejected zero-fee bid because for a commercial contract to be signed there has be some amount on paper," said one source.
He added, "Just to give a perspective, at the current fee while CIL IPO managers are expected to incur $3-4 million in costs -- from legal documentation to marketing -- they will end up getting just about Rs 200-250 per head (about Rs 12,000-13,000) in all."
One banker said that although this kind of fee is "unique", merchant bankers view the costs (or loss) they incur as "advertising cost" and "future investment", in a country (like India) which is planning to raise Rs 40,000 crore through disinvestment plan in the near term. "That itself is a big ticket (attraction)," he added.
Although official indications are that the planned 10 per cent divestment of CIL through the IPO may fetch the government between Rs 10,000 crore and Rs 12,000 crore, sources said the thinking among the short-listed managers is that the issue should fetch 10-20 per cent more than the "upper limit" being talked about.
One banker said that after the Department of Disinvestment (DoD) appoints the issue managers in a couple of days, it could take three-four months for the issue to hit the market depending on a host of factors including the preparedness of the company to deal with the full impact of the European financial crisis on global markets.
The government, which owns 100 per cent of CIL, plans to offload a 10 per cent stake through the IPO. According to CIL officials, the issue is expected to hit the capital markets by July-August.
Besides, they said that in addition to the government's equity likely to be channelised towards the IPO, part of the stake is proposed to go to around 4.16 lakh employees of CIL and its subsidiaries.
The Centre is likely to sell its 63.13 crore shares in the IPO, while the company's employees could be offered to purchase additional 6.31 shares of CIL. The draft divestment proposal may reach the Cabinet soon, officials said.
Last week, CIL suffered a partial production loss after employees owing allegiance to trade union CITU went on strike to protest against the PSU's Rs 12,000-crore disinvestment plan.
However, the remaining three trade unions at CIL --INTUC, AITUC and Bhartiya Mazdoor Sangh (BMS) -- had withdrawn the strike call following an assurance by the company as well as Finance Minister Pranab Mukherjee, that the bare minimum disinvestment will be done for listing of the company.
While conferring Navratna status on CIL in October 2008, the government had asked the coal firm to get listed within three years, which required disinvestment of at least 10 per cent of the government's holding.
Officials said that following the poor response to the auction-based route for selling its shares in two power firms NTPC and REC, the government is likely to go for book-building process which would offer a price band to investors to buy shares of the coal major. A five per cent discount on the issue price of shares is also being proposed for CIL employees.
Officials said market regulator Sebi has recently given special dispensation to CIL by which it would be able to offer shares to employees of its subsidiaries as well.
