What is perplexing is the government’s failure to anticipate the market mood and to prepare different classes of investors for the avalanche of investment offers. (March1, 2004)
Analysing Arun Shourie’s Anxiety
“Neighbour’s envy, Owner’s Pride” is what happens when you buy a television set — especially if it is an Onida. But when you are selling the family silver, or the navratnas of the industrial sector — then “owner’s anxiety” could turn the seller ballistic. Or that is what Shitin Desai of DSP Merrill Lynch would have us believe.
Desai’s was the rare voice from the investment banking community reacting publicly to disinvestment minister Arun Shourie’s outburst last week. Shourie blamed the advisors to public sector issues for bad advice and suspected a sinister game to depress stock prices prior to the public offers. What is perplexing is the government’s failure to anticipate the market mood and to prepare different classes of investors for the avalanche of investment offers. Indeed, no special effort has been made to understand retail investors’ needs, to market the issues aggressively, or to time them and space them correctly.
In fact, the government was full of confidence, right until it was hit by sluggish subscriptions to the first two offers, and the pathetic initial response to IBP threatened to embarrass the government and derail the entire disinvestment programme. A wag said that, like Ekta Kapoor, the disinvestment minister was influenced by the K factor as in his advisors — (Uday) Kotak, (Nimesh) Kampani, (Hemendra) Kothari, (K V) Kamat and (Naina Lal) Kidwai. Last week, they seemed to fall out of favour, like another K who used to dominate the markets. The question is, did vested interests deliberately depress markets or was it simply bad management? The disinvestment minister’s hush-hush meeting with the Securities and Exchange Board of India (SEBI) chairman, and his consultations with the Intelligence Bureau chief, suggest that there must have been at least a little fire somewhere; especially in connection with less liquid PSU stocks. But deliberate selling, if any, could easily have be detected through the share depository data.
As for the machinations of a leading corporate house, I learn that the finance ministry mandarins, at a SEBI meeting last Friday, were clear that they wanted no speculation about corporate involvement without specific information. In other words, they had no special interest in probing any corporate house.
On the other hand, it is an established fact that a large number of investors were selling a variety of stocks, either to book profits or in order to raise funds for investing in PSU offerings. There is also a general consensus that the IBP issue was initially ignored because it was considered overpriced and not terribly attractive since it was owned by another PSU (Indian Oil Corporation had picked up the shares at a whopping Rs 1,500, when the next best bid was Rs 700 by Shell). While this historical pricing disparity over IBP confused several investors, at least Franklin Templeton has found it attractive at Rs 636.
Third, the intense competition between investment banking firms was also responsible for dampened enthusiasm. One investor sent me an investment matrix put out by a leading brokerage firm. The strongest recommendation was for the issue being managed by a group company and two others were dismissed as moderately good. The pattern was probably repeated at most leading brokerage outfits. Investors were also encouraged to apply in the primary market and sell in the secondary market.
What is, however, very curious is that the disinvestment minister’s outburst has provoked increased enthusiasm from foreign investors. Notice how foreign investors suddenly snapped up over 70 per cent of the IPCL offer?
The situation gets even stranger in the cases of ONGC and GAIL (Gas Authority of India Ltd.). After newspapers had openly reported that the two mega issues (offering 142.59 million shares and 84.5 million shares, respectively) would find the going tough, a fund manager with a foreign fund, unconnected with the lead managers, says the exact opposite. According to him, there is enormous foreign investment interest in both issues. ONGC in particular, he says, could be oversubscribed several times over.
A leading foreign broker is even understood to have started a Participatory Note to give hedge funds and other foreign investors a chance to invest in ONGC. This should ensure a good after-market for the scrip, he says. Did the multiple high-profile investment bankers to the ONGC issue not know this? Did they not inform the disinvestment minister? Had he stopped believing his advisors due to an attack of “owner’s anxiety”? Or did the mood swing, on the part of foreign investors, occur only after Arun Shourie threatened an investigation and called in the Intelligence Bureau? We will know the real truth only after the issues open for subscription. Otherwise, the public sector insurance companies have already started drumming up support.
But things are still not hunky-dory on the PSU issue front. Exactly half the issue is reserved for retail and high net worth investors and many of them remain confused by the book building process and the volatile secondary markets. While the ONGC and GAIL offers may not be very large by international standards, they are among the biggest offerings in the Indian market. Some veteran wealthy investors are so put off by last week’s confusion and the problem of evaluating the correct bid price in a volatile market, that they have decided to stay away from all PSU offers.
Investment bankers are probably betting on the fact that if shares reserved for individual investors fail to attract adequate subscription, their quota could roll over to institutional investors with better results. None of these differing views and factors still present a clear picture of what went wrong in planning the massive Rs 17,000 crore disinvestment programme that was to add depth to the Indian capital market. What is, however, clear is that the disinvestment minister’s very public flare-up only added to the confusion, when quiet manoeuvring and restrained warnings could have had the desired effect.