dod- final report

7/29/2019 Dod- Final Report

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Private&Confidential

September2011

DisinvestmentbyGovernmentCompaniesAProcessKeynoteCorporateServicesLimited


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DisinvestmentbyGovernmentCompanies:AProcess

DisclaimerThis document is for illustration purpose only. This is a compilation of information relating todisinvestmentprocessbyGovernmentofIndiaandvariousmethodologiesadapted/tobeadaptedforthe said purpose. This contains certain historical data obtained from authenticated sources availablepublically.KeynoteCorporateServicesLimited(Keynote)doesnotguaranteethecorrectnessforthesaiddata.This isaimedatprovidinggeneral informationaboutthedisinvestment,theprocess,thedataondisinvestmentsmadeinIndiabyPublicsectorUndertakings(PSUs)tilldate.Nothingcontainedhereinis,orshallberelieduponasapromiseorrepresentation.Anyreproductionofthe contents of this presentation in whole or in part, or disclosure to the third parties of any of itscontents,withoutpriorwrittenconsentofKeynoteisprohibited.Keynotedoesnotmakeanyexpressedor implied representationorwarrantyandno responsibilityorliability is accepted by the Company with respect to the accuracy, completeness or the underlyingassumptionsonwhichtheyarebased,orachievingreturnsasperthetermssetouthere.


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TableofContents1 Introduction 1

2 DifferentApproachestoDisinvestments 3

2.1

Minority

Disinvestment

3 2.2 MajorityDisinvestment 3

2.3 CompletePrivatization 3

3 DisinvestmentsAhistoricalPerspective 4

3.1 Periodfrom199192to200001 4



3.4 200910onwards 5

4 TheProcessofDisinvestment 6

4A

Comparison

of

Process

of

making

Public

Offering

by

non

Government

and

Governmentcompanies 9

5 PreparingaPSUforDisinvestment 10

5.1 EligibilityNorms 10

5.2 AlternativeNorms 11

5.3 Exemptionstocertaincategoryofentitiesfromtheeligibilitynorms 11

5.4 FastTrackIssue 11

5.5 MinimumPublicShareholding&RelaxationsgiventoPublicSector

Companies

12

5.6 CorporateGovernanceRequirements 12

5.7

Other

Key

Steps

13

6 ExceptionsgiventoGovernmentCompaniesunderSEBIICDRRegulations 14

6.1 Eligiblesharesforoffer(regulation26(6)) 14

6.2 Facevalueofequityshares(31(1b)) 14

6.3 Securitiesineligibleforminimumpromoterscontribution(33(1b)(iii)) 15

6.4 Minimumoffertopublic(41(2)) 15

6.5 FinancialinformationofGroupCompanies(disclosuresunderScheduleVIII

PartA)

15

6.6 Outstandinglitigationsinvolvingthepromoterandgroupcompanies

(disclosuresunder

Schedule

VIII

Part

A)

15

7 Marketing&sellingstrategy 16

7.1 MarketingStrategy 16

7.2 SellingStrategy 16

8 Conclusion 18

A Annexure1 DisinvestmentbyGovernmentCompaniestilldate 19


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1. Introduction

1.1 For the first four decades after Independence, the country was pursuing a path of

development in which the public sector was expected to be the engine of growth. The

decade beginning 1990 also commenced implementation of ambitious growth plan of

Government of India on principles of Liberalization, Privatization and Globalization. Bythen, the public sector had overgrown itself and some of its shortcomings started

manifesting in low capacity utilization and low efficiency due to over manning, low

work ethics, over capitalization due to substantial time and cost over runs, inability to

innovate, take quick and timely decisions, large interference in decision making process

etc. Hence, a decision was taken in 1991 to follow the path of Disinvestment.

1.2 The process of disinvestment of Public Sector Undertakings (PSU) was started by the

Government in 1991-92. Different methodologies for disinvestment were adopted from

time to time such as

Auction Method or Partial Disinvestment in favour of mutual funds andfinancial institutions in the public sector,Initially disinvestment through Auction Method was made by offering shares to Mutual

funds and Financial Institutions. These PSUs were permitted to be listed and traded on

stock exchanges enabling retail and other investors to invest in these blue chip PSUs

through secondary market.

Strategic Sale for privatization(1999-2000 and 2002-2003) Market Sale (2003-05 onwards) through

o Initial Public Offer or Follow-on Public Offero Offer for Sale for divestment of minority shareholding

1.3 In August 1996 that Government established a Disinvestment Commission (DC)initially for duration of three years to advise it on all aspects relating to public sectordisinvestment.

The main terms of reference were.

To draw a comprehensive overall long-term disinvestment programme within 5-10 years for the PSUs referred to it by the Core Group comprising Secretaries of

selected Ministries;

To determine the extent of disinvestment in each PSU; To prioritize the PSUs referred to it by the Core Group in terms of the overall

disinvestment programme; To recommend the preferred mode(s) of disinvestment for each of the identified

PSUs;

To supervise the overall sale process and take decisions on instrument, pricing,timing etc., as appropriate;

To select the financial advisors for specified PSUs to facilitate the disinvestmentprocess;


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To monitor the progress of disinvestment process and take necessary measuresand to advise Government on possible capital restructuring of the enterprises by

marginal investments, if required, so as to ensure enhanced realization through

disinvestment.

1.4 Government classified (March 1999) the PSUs into those functioning in strategic andnon-strategic areas for the purpose of disinvestment. All PSUs except those in the three

areas of arms and ammunition and allied items of defense equipment, defense air-craft and

warships, atomic energy (except in the areas related to the generation of nuclear power and

application of radiation and radio-isotopes to agriculture, medicine and non-strategic industries)

and railway transport were to be considered non-strategic. In these non-strategic cases

it was decided that the reduction of Government stake to 26 per cent would not be

automatic and the manner and pace of doing so would be worked out on a case by case

basis.

1.5 Government further decided (March 1999) that divesting their stake to less than 51

per cent or to 26 per cent would be taken on considerations as to whether the industrial

sector required the presence of the public sector as a countervailing force to prevent

concentration of power in private hands, and whether the industrial sector required a

proper regulatory mechanism to protect the consumer interests before the PSUs were

privatized. Government also decided to strengthen strategic PSUs, privatize non-

strategic PSUs through gradual disinvestment or strategic sale and devise viable

rehabilitation strategies for the weak units.

1.6 In December 1999 Government established a new Department for Disinvestment(DOD) to lay down a systematic policy approach to disinvestment and privatization and

to give a fresh impetus to this programme. In the budget speech of 2000-01, Government

stated that it was prepared to reduce its stake in the non-strategic PSUs even below 26

per cent, if necessary and that there would be increasing emphasis on strategic sales. It

further stated that it would set up a Disinvestment Proceeds Fund and the entire

proceeds from disinvestment would be used for meeting the expenditure in the social

sector, restructuring of PSUs and retiring public debt.


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2. Different Approaches to Disinvestments

There are primarily three different approaches to disinvestments (from the sellers i.e.

Governments perspective)

2.1 Minority Disinvestment

A minority disinvestment is one such that, at the end of it, the government retains a

majority stake in the company, typically greater than 51%, thus ensuring management

control. Historically, minority stakes have been either auctioned off to institutions

(financial) or offloaded to the public by way of an Offer for Sale.

Examples of minority sales via auctioning to institutions go back into the early and mid

90s. Some of them were Andrew Yule & Co. Ltd., CMC Ltd. etc. Examples of minority

sales via Offer for Sale include recent issues of Power Grid Corp. of India Ltd., Rural

Electrification Corp. Ltd., NTPC Ltd., NHPC Ltd. etc.

2.2 Majority Disinvestment

A majority disinvestment is one in which the government, post disinvestment, retains a

minority stake in the company i.e. it sells off a majority stake.

Historically, majority disinvestments have been typically made to strategic partners.

These partners could be other CPSEs themselves, a few examples being Bongaigaon

Refinery & Petrochemicals Limited (BRPL) to Indian Oil Corporation (IOC), Madras

Refinery Limited (MRL) to IOC, and Kochi Refinery Limited (KRL) to Bharat Petroleum

Corporations Limited (BPCL). Alternatively, these can be private entities, like the sale of

Modern Foods to Hindustan Lever, BALCO to Sterlite, and CMC to TCS etc.

Again, like in the case of minority disinvestment, the stake can also be offloaded by way

of an Offer for Sale, separately or in conjunction with a sale to a strategic partner.

2.3 Complete Privatization

Complete privatization is a form of majority disinvestment wherein 100% control of the

company is passed on to a buyer. Examples of this include 18 hotel properties of ITDC

and 3 hotel properties of HCI.

Disinvestment and Privatization are often loosely used interchangeably. There is,

however, a vital difference between the two. Disinvestment may or may not result in

Privatization. When the Government retains 26% of the shares carrying voting powers

while selling the remaining to a strategic buyer, it would have disinvested, but would

not have privatized, because with 26%, it can still stall vital decisions for which

generally a special resolution (three-fourths majority) is required.


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3. Disinvestments-A Historical Perspective

3.1 Period from 1991-92 to 2000-01

The change process in India began in the year 1991-92, with 31 selected PSUs disinvested

for Rs.3,038 crore. In August 1996, the Disinvestment Commission, chaired by G V

Ramakrishna was set up to advice, supervise, monitor and publicize gradual

disinvestment of Indian PSUs. It submitted 13 reports covering recommendations on

privatization of 57 PSUs. However, the Disinvestment Commission ceased to exist in

May 2004.

The Department of Disinvestment was set up as a separate department in December,

1999 and was later renamed as Ministry of Disinvestment from September, 2001. From

May, 2004, the Department of Disinvestment became one of the Departments under the

Ministry of Finance.

Against an aggregate target of Rs 54,300 crore to be raised from PSU disinvestment from1991-92 to 2000-01, the Government managed to raise just Rs 20,078.62 crore (less than

half). Interestingly, the government was able to meet its annual target in only 3 (out of

10) years. In 1993-94, the proceeds from PSU disinvestment were nil over a target

amount of Rs 3,500 crore.

The reasons for such low proceeds from disinvestment against the actual target set

were:

Unfavorable market conditions

Offers made by the government were not attractive for private sector investors Lot of opposition on the valuation process No clear-cut policy on disinvestment Strong opposition from employee and trade unions Lack of transparency in the process Lack of political will

This was the period when disinvestment happened primarily by way of sale of minority

stakes of the PSUs through domestic or international issue of shares in small tranches.

The value realized through the sale of shares, even in blue chip companies like IOC,BPCL, HPCL, GAIL & VSNL, however, was low since the control still lay with the

government.

Most of these offers of minority stakes during this period were picked up by the

domestic financial institutions. Unit Trust of India was one such major institution.


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3.2 Period from 2001-02 to 2003-04

This was the period when maximum number of disinvestments took place. These took

the shape of either strategic sales (involving an effective transfer of control and

management to a private entity) or an offer for sale to the public, with the government

still retaining control of the management. Some of the companies which witnessed astrategic sale included:

BHARAT ALUMINIUM CO.LTD.

CMC LTD.

HINDUSTAN ZINC LTD.

HOTEL CORP.OF INDIA LTD. (3 PROPERTIES: CENTAUR HOTEL,JUHU

BEACH, CENTAUR HOTEL AIRPORT,MUMBAI & INDO HOKKE HOTELS

LTD.,RAJGIR)

HTL LTD.

IBP CO.LTD. INDIA TOURISM DEVELOPMENT CORP.LTD.(18 HOTEL PROPERTIES)

INDIAN PETROCHEMICALS CORP.LTD.

JESSOP & CO.LTD.

LAGAN JUTE MACHINERY CO.LTD.

MARUTI SUZUKI INDIA LTD.

MODERN FOOD INDUSTRIES (INDIA) LTD.

PARADEEP PHOSPHATES LTD.

The valuations realized by this route were found to be substantially higher than those

from minority stake sales. During this period, against an aggregate target of Rs 38,500crore to be raised from PSU disinvestment, the Government managed to raise Rs

21,163.68 crore.

3.3 Period from 2004-05 to 2008-09

The issue of PSU disinvestment remained a contentious issue through this period. As a

result, the disinvestment agenda stagnated during this period. In the 5 years from 2003-

04 to 2008-09, the total receipts from disinvestments were only Rs. 8515.93 crore.

3.4 2009-10 onwards

A stable government and improved stock market conditions has led to a renewed thrust

on disinvestments. The Government has started the process by selling minority stakes in

listed and unlisted (profit-making) PSUs through public offers. As on 31st December

2010, Rs. 46315.59 crore had been raised in this period.


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4. The Process of Disinvestment

4.1 The disinvestment in any Government company is carried by Department ofDisinvestment (DOD). It was converted from an independent Ministry to theDepartment of Disinvestment (DOD) under the Ministry of Finance. DOD is responsible

for taking each proposal to the Cabinet Committee on Disinvestment (CCD), the highestdecision making body in the approval channel.

4.2 The next step involves deciding on the methodology to be followed for

disinvestment. From time to time Government has adopted several methodologies as

4.2.a Auction is one of the methods for divesting shares under market sale where thepricing is optimized through bidding. It is less time consuming and involves lowtransaction cost. It is targeted at the institutional investors. In the initial rounds ofdisinvestment, Government divested its stake in PSUs thorough this method.

4.2.b Strategic sale implies selling of a substantial block of government holdings to asingle party, which would not only acquire substantial equity holdings of up to 51per cent but also bring in the necessary technology for making the public sectorenterprise viable and competitive in the global market. Alternatively, Strategic Saleincludes two elements, one is transfer of block of shares to a Strategic Partner andthe second is transfer of management control to the Strategic Partner.

4.2.c Market sale signifies sale of shares to individuals, financial institutions orprivate sector business, which can then be traded in the market. It includes the saleof shares through initial public offer, offer for sale to public, international offering,private placement and auction

4.2.c (i) Initial Public offering (IPO) is the first issue of equity shares to thepublic by an unlisted company.

4.2.c.(ii) Offer for sale is offer of shares by existing shareholder(s) of a companyto the public for subscription, through an offer document.

4.3 The next step involves selection and appointment of several intermediaries that areinvolved in the process, the most important being the Book running Lead Manager orthe BRLM. Other intermediaries that are required in an Initial public Offering include

Bankers to the Issue, Registrar to the Issue, Legal AdvisersDomestic and International,Auditors and Advertising Agency/Public Relation Agency. There are separateindividual eligibility requirements for each of the intermediary involved.


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The Book Running Lead Managers will be required, inter alia, to undertake tasks

related to all aspects of the Initial Public Offer, including but not restricted to, as

mentioned below: -

(i) Advise the Government of India on the timing and the modalities of the InitialPublic Offer.

(ii) Structure the Initial Public Offer in conformity with the prevailing frameworkand Guidelines/ Regulations of SEBI, the Stock Exchanges and Securities

Contract and Regulations Act, 1957 and Companies Act, 1956.

(iii) Undertake due diligence activities and prepare the DRHP/RHP/Prospectus andcomplete all stipulated requirements & formalities of regulatory/statutory

authorities.

(iv) Undertake filing of the DRHP/RHP/Prospectus with SEBI/ Stock Exchanges/ROC.

(v) Advise on the regulatory norms and assist in securing approval and exemptions,wherever necessary, from various regulatory agencies such as SEBI, Stock

Exchanges, RBI, etc.

(vi) Ensure optimum return to the Government.(vii) Conduct pre-market survey, road shows to generate interest amongst

prospective investors. Arrange meetings with the key investors, facilitate

communication about the growth potential of the Company and articulate the

key marketing themes & positioning of the Company.

(viii) Undertake market research, assist in the pricing of the Issue, allocation of sharesand provide after sale support, etc.

(ix) Perform all other responsibilities connected with the Initial Public Offer.(x) Underwrite the Initial Public Offer.(xi) Assist in selection of intermediaries to be appointed by Government and

coordinate the work of all intermediaries.

(xii) Prepare and approve the statutory advertisements for publication. The cost ofthe preparation will be borne by the BRLMs and the cost of publication will be

borne by the Government.

(xiii) Organize road shows both domestic and international.


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(xiv) Undertake the task of printing and distribution of stationery required for theInitial Public Offer.

(xv) The appointed BRLMs will also make the following payments:i. Filing fee to SEBI;

ii. NSE/BSE charges for use of software for the book building;iii. Payments required to be made to Depository or the Depository

Participants for transfer of shares to the beneficiaries account.

(xvi) Ensure completion of all post issue related activities as laid down in the SEBIRegulations.

(xvii) Render such other assistance as may be required in connection with the IPO.


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4A ComparisonofProcessofmakingPublicOfferingbynonGovernmentand

GovernmentcompaniesParticulars Non Government Company Government Company

Objective To raise resources to fund theobjects such as

project implementation working capital repayment of loan acquisitions etc

The major objective is to raise resourcesfor the government to fund Fiscal

deficit.

Origination Origination is Management specificand a one step process as it involvesPromoters decision.

Origination depends on Governmentpolicies which are specific to a Sectorand a Company. It involves complexsituations of identifying a target whichis marketable.

Appointmentof

Intermediaries

Flexible and speedy process asdecision making is swift on account

of direct involvement of Promoters& management.

Being Government, the process is lessflexible and involves a tendering

approach. The parameters of eligibilitycriterias have to be determined forselection of various intermediariesfollowed by a technical & financialevaluation process. It is a timeconsuming multi step process.

IPOPreparedness

IPO preparedness is easy toestablish as focused approach isfollowed.

It involves various levels of internalclearances and coordination amongstseveral government departments &specific committees.

Offer

Parameters

No specific exemptions except in

case of follow on offers bycompanies under a Fast Track Issue.

Exemptions are available with respect

to minimum dilution and eligibility forpre-IPO holding for offer for sale & facevalue of shares of PSUs engaged ininfrastructure sector. Banks are exemptfrom entry norms.

OfferDocument

No specific exemptions. Exemptions available with respect todisclosures of group companysinformation and litigation involvingpromoters and group companies.

StatutoryClearances /

Approvals

Hurdles in the form of detailedscrutiny.

Swift clearances. It has been observedthat statutory approvals/ clearances

required for launching an IPO arewithin the stipulated time prescribed inregulations.

Marketing Need a higher degree of marketingto garner participation.

Government pedigree helps inmarketing the issue if the issue is pricedattractively. IPOs are better marketablethan FPOs. Marketing FPOs is a greatchallenge as price is already available.


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5. Preparing a PSU for Disinvestment

As far as process of making public offer by companies under Public Sector (PSUs) and

no Public Sector (non PSUs) are concerned, there is a level playing field. All the

companies are required to comply with applicable provisions of Companies act 1956,

ICDR regulations, Securities Contract Regulations/Rules 1957 as well as compliancewith listing agreements. SEBI ICDR provides for certain exemptions in applicability of

regulations in respect of PSUs which are summarized as under:

PSUs can make initial public offer (IPO) with dilution of at least 10 per cent ofthe equity to public in terms of offer document.

Eligibility for holding period of one year of shares which are offered for sale isrelaxed in case of PSUs engaged in infrastructure sector.

The face value of shares of PSUs engaged in infrastructure sector can be lessthan Rs 10 per share irrespective of issue price.

All the shares held by the promoters before making an IPO are eligible forminimum promoter contribution in case of PSUs

Disclosures of financial information of the group companies in the offerdocument in respect of PSUs is exempt

Disclosures of information on outstanding litigation involving promoter/groupcompanies by PSUs are exempt.

Banks are exempt from entry norms prescribedIt is imperative that management teams of the concerned PSUs are abreast of securities

laws mainly SEBI (ICDR) Regulations, 2009; Companies Act, 1956; Securities Contract

regulations Rules, 1957 etc.

Though legal advisors will be appointed for the said purpose, understanding by

respective PSU executives go a long way in handling the same smoothly.

5.1 Eligibility norms

SEBI has stipulated the eligibility norms for companies planning an IPO which are as

follows:

a) Net tangible assets of at least Rs. 3 crore in each of the preceding three full years

b) Distributable profits for at least three out of the immediately preceding five yearsc) Net worth of at least Rs. 1 crore in each of the preceding three full years

d) The issue size should not exceed 5 times the pre-issue net worth

e) If there has been a change in the companys name, at least 50% of the revenue for

preceding one year should be from the new activity denoted by the new name


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5.2 Alternative routes

Recognizing that many good companies, for one reason or the other, may not be able to

comply with all the eligibility norms, alternative route is available to such companies

provided they fulfill the conditions mentioned under (A) and (B):

(A)

Issue shall be through book building route, with at least 50% to be mandatorilyallotted to the Qualified Institutional Buyers (QIBs)

OR

The project is appraised and participated to the extent of 15% by FIs/ScheduledCommercial Banks of which at least 10% comes from the appraiser(s).

At least 10% of the issue shall be allotted to QIBs(B)

The minimum post-issue face value capital shall be Rs. 10 croreOR

Market making for 2 years.5.3 Exemptions to certain category of entities from the eligibility norms

The following categories of entities are eligible for exemption from entry norms.

A banking company including a local area bank set up under the Banking

Regulation Act, 1949

A corresponding new bank set up under the Banking Companies Act, 1970

An infrastructure company[

Whose project has been appraised by a Public Financial Institution (PFI)

Not less than 5% of the project cost is financed by any of the PFI

Rights Issue by a listed company

5.4 Fast Track issue

For listed companies with, average market capitalization of public shareholding of at least

Rs 5000 crore special provision is available under regulations 10(1) and 10(2) of SEBI ICDR

Regulations, 2009. Under the mechanism, lead managers can proceed with an issue or

capital-raising plan of a company listed on the NSE or BSE after filing the offer documentwith SEBI.


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5.5 Minimum Public Shareholding Requirements & relaxations given to Public

Sector Companies

Amendment to Securities Contracts (Regulation) Rules, 1957 has provided special

relaxations to listed Public sector undertakings and Public sector companies who want

to get listed.

A Public sector company shall offer and allot at least ten per cent of each class orkind of equity shares or debentures convertible in equity shares to public in terms of

an offer document.

A listed Public sector company has to achieve a minimum public shareholding of atleast ten per cent within the time period specified in the regulation.

5.6 Corporate Governance requirements

Any Issuer company signs listing agreement with the stock exchanges which determineongoing disclosures and requirements.

The following are the requirements related to Corporate Governance of the Company:

Constitution of Board of Directors (BoD) At least one-half non executive Directors One-third independent Directors in case of a non-executive Chairman One-half independent Directors in case of an executive Chairman One-half independent Directors in case non-executive Chairman being a

promoter or related to the promoters or persons occupying management

positions at the Board level or at one level below the Board

Subsidiary Companies At least 1 independent director on the BoD (Hold co.) shall be a director on

the BoD of a material unlisted Indian subsidiary

Various other committees Remuneration Committee

Should comprise at least three members Have all non-executive Directors Committee Chairman to be an independent Director


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Shareholders Committee A board committee under the chairmanship of a non-executive

director

Redressal of shareholder and investors complaints like transfer ofshares, non-receipt of balance sheet, non-receipt of declared dividends

etc.

Audit Committee Should comprise at least three members Two-thirds of the members shall be independent Directors At least one Director should have financial and accounting

knowledge

Committee Chairman to be an independent Director A report on Corporate Governance is required to be published in the annual

report of the company.

5.7 Other Key Steps

Decide on composition and size of the issue - offer for sale from Government or

combination (i.e. Offer for sale+ Fresh Issue)

Appointment of Investment Bankers and Other Intermediaries Board of directors to form an IPO Committee to oversee various aspects of resource

rising such as legal, administrative, marketing, compliances etc.

A separate data room to be created along with a dedicated IPO team Finalize objects of the offer in case its a fresh issue of equity shares. Company can start with the brand building / publicity / PR exercise before the

board approves the IPO as the publicity restrictions will not apply from the time the

board meets approves the IPO

Seek FIPB and RBI approval for issuing/transferring securities to NRI/OCBs/FIIs, ifrequired

Memorandum and Articles of Association to be amended , if any, in line with therequirement of the Stock Exchanges

Check if any of the directors of the issuer is associated with the securities market inany manner, if yes, whether the SEBI has initiated any action against the said entities

and the related details.

Tripartite agreement with Company, NSDL and CDSL and Registrar fordematerialization of shares


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6. Exceptions given to Government Companies under SEBI ICDR Regulations

6.1 Eligible shares for offer (regulation 26(6))

Equity shares may be offered for sale to public if such equity shares have been held by

the sellers for a period of at least one year prior to the filing of draft offer document withthe Board. Provided that in case equity shares received on conversion or exchange of

fully paid-up compulsorily convertible securities including depository receipts are being

offered for sale, the holding period of such convertible securities as well as that of

resultant equity shares together shall be considered for the purpose of calculation of one

year period.

Provided further that the requirement of holding equity shares for a period of one

year shall not apply:

(a) In case of an offer for sale of specified securities of a government company orstatutory authority or corporation or any special purpose vehicle set up and

controlled by any one or more of them, which is engaged in infrastructure sector;

(b) If the specified securities offered for sale were acquired pursuant to any scheme

approved by a High Court under sections 391-394 of the Companies Act, 1956, in lieu

of business and invested capital which had been in existence for a period of more

than one year prior to such approval.

6.2 Face value of equity shares (31(1b))

Subject to the provisions of the Companies Act, 1956, the Act and these regulations, anissuer making an initial public offer may determine the face value of the equity shares in

the following manner:

(a) if the issue price per equity share is five hundred rupees or more, the issuer shall

have the option to determine the face value at less than ten rupees per equity share:

Provided that the face value shall not be less than one rupee per equity share;

(b) If the issue price per equity share is less than five hundred rupees, the face value

of the equity shares shall be ten rupees per equity share:

Provided that nothing contained in this sub-regulation shall apply to initial public

offer made by any government company, statutory authority or corporation or any

special purpose vehicle set up by any of them, which is engaged in infrastructure

sector.


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6.3 Securities ineligible for minimum promoters contribution: (33(1b) (iii))

Specified securities acquired by promoters during the preceding one year at a price

lower than the price at which specified securities are being offered to public in the initial

public offer are not eligible

Provided that nothing contained in this clause shall apply to an initial public offer by a

government company, statutory authority or Corporation or any special purpose

vehicle set up by any of them, which is engaged in infrastructure sector

6.4 Minimum offer to public:(41(2))

A government company or statutory authority or corporation or any special purpose

vehicle set up and controlled by any one or more of them, which is engaged in

infrastructure sector may come up with an issue offering less than ten percent of

shares to public. However it will have to achieve at least ten per cent public

shareholding within three years from date of listing to be in compliance with Securities

Contract Regulation Rules, 1957.

6.5 Financial information of group companies: (disclosures to be made as per

Schedule VIII Part A)

Public sector companies are not required to disclose financial information of group

companies.

6.6 Outstanding litigations involving the promoter and group companies (disclosures

to be made as per Schedule VIII Part A)

Public sector companies are not required to disclose outstanding litigations involving

the promoter and group companies.


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7. Marketing & Selling Strategy

7.1 Marketing Strategy

Create buzz in the market with sustained media effort including televisionadvertisements and press articles

Sponsor credibility and pedigree of the company is to be continuously emphasized Interaction with the broking community to help and create awareness about the

issue amongst their regular clients

7.1.a Investor Awareness

Organizing management meeting with large institutional investors Effectively creating the industry story Effective use of alternate media platform

Providing clarifications Identifying investment centres with maximum potential through demographic

mapping

Personalized discussion with large secondary market brokers7.1.b Effective Communication

Marketing the issue through the Syndicate Members, Broker and Sub-Broke network Press conference at leading investment centres Organizing visit to company set-up for the countrys leading brokers/ Analysts etc. A nationwide network of brokers to be involved in marketing the issue7.1.c Facilitate Bidding

Marketing the issue through the Syndicate Members, Broker and Sub-Brokernetwork

More than 700 Bidding Centres covering nearly 75 cities7.2 Selling Strategy

Attractive pricing retail discount to the extent possible Reasonable incentives for distribution efforts Conducting domestic & international road shows Choice of road show locations (cities) & nature of the road shows i.e. special road

shows for large distributors, HNI clients, etc

Educating employees to ensure participation in the process Substantial first day subscriptions in the employee and QIB category


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The issue stationery quantities and distribution needs to be timed well far-flunglocations need to be reached while the shelf life in main centers needs to be

conserved not too early not too late

Pre issue marketing build up needs to be appropriately timed suitableadvertisement channels to be employed

Extensive PR activities just after filing of DRHP to inform investors about thecompany

Mobilizing distribution network just after filing of DRHP to ensure proper buy-infrom all the distributors

Appropriate timing for the communication of Issue Price7.2.a Retail / NI/HNI

Retail demand has been the driver for many public issues Providing efficient infrastructural support to facilitate bidding goes a long way in

garnering bids

Retail/HNI closely linked to build up of book Retail:>95% of applications are at cut-off HNIs + Retail:>90% applications come on the last day Retail Demand is concentrated with

Top 6 cities contributing to ~ 65% and Top 10 cities contributing ~ 79% of the amount collected Apart from the 4 metros, Ahmedabad, Baroda, Rajkot, Surat, Hyderabad,

Bangalore, Baroda, Pune, Jaipur are prominent centres for Retail Demand

7.2.b QIB Investors

QIB,s comprise of Foreign Institutional investors, Mutual funds, InsuranceCompanies & Banks etc.

QIBs Set the tone for the IPO Anchor investors who provide initial impetus to theBook and predict success of the issue

QIBs are aggressive with respect to pricing and bidding Unsatisfied QIB demand provides the impetus for premium on listing Key to

sustained demand, liquidity and price performance of the issue over a longer period

Preparation of offering memo in compliance with regulations Appropriate positioning to justify valuation and generate interest Marketing road shows to interact with institutional investors These are the investors with whom Equity Research and Sales teams of the

Investment Bankers speak to on a day-to-day basis.


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18

8. Conclusion

In the vibrant capital market scenario disinvestment by PSUs is of utmost importance as

it fulfills twin objective of raising resources by the PSUs as a part of economic policy and

offering participation in the wealth of the PSUs by investors at large including retail

investors. Though the performance of stocks of PSUs in the secondary market has

mixed results from the point of view of capital appreciation, generally PSU stocks have

been regarded as safe and best investment opportunities backed by strong

fundamentals, rich asset base, strategic business of national interest and good

governance as compared to various issuances of private sector undertakings in last 2

decades. The response to the offers by PSUs from the investors at large has been

encouraging and some of the PSU stocks have performed exceedingly well in the

secondary market creating great value for investors.

The parameters those are applicable to corporate sector such as proper pricing, timing of

the issue, objects for which funds being raised are also applicable to PSUs. The

experience is that the PSUs that have strategically planned their issuances with proper

pricing have been received well by the capital market and their performance in the stock

market has yielded good results.

It is observed that many PSUs including Banks who have tapped Capital Markets with

IPOs have made further public offers (FPOs) to raise the resources and/or to achieve

disinvestment targets. The pricing of FPOs and marketing of them has always been a

difficult task on account of availability of market price for the existing capital and thus

fixing of price for FPO becomes difficult. PSUs have rarely chosen the path of rights

issue to the existing equity shareholders except some of the public sector banks like State

Bank of India.

Further, there are many PSUs which are listed with the public holding of less than 10%

which are required to attain at least 10% pubic shareholding in the period of 3 years as

per the government norms. There are many other opportunities of disinvestment by

PSUs in various sectors and it is imperative to have strategic plan to take up

disinvestment process at an opportune time. It is important for the PSUs to keep

exploring various possibilities of raising further resources or divest the equity through

public at large from time to time.

The preparedness of PSUs to tap the capital market as and when the conditions areconducive is of utmost importance to achieve desired goals. After the great success of

Coal India IPO with very good market conditions not much IPOs of PSUs could be made

to derive the benefit of the thumping success of Coal India, though some of the FPOs

were completed during this phase. The conscious effort need to be made to develop a

concrete plan to proceed with disinvestment and department shall have a basket of

PSUs ready and available to hit the market at an appropriate time.


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19

Annexure


23/30

SL.NO. COMPANY

IPO/FP O O PE NI NG DIV ES TME NT DI VE STME NT D IVE STME NT FRE SHCAPITAL FRESHCAPITAL ISSUEAMOUNT %GOVT. %GOVT.

(NAMEASATTHETIMEOFISSUE) DATE/FINANCIALYEAR BY (Rs.crore) AS%OFPOST (Rs.crore) AS%OFPOST (Rs.crore) HOLDING HOLDING

ISSUECAPITAL ISSUECAPITAL PRIORTO AFTERI SSISSUE

1 BHARATEARTHMOVERSLTD. FPO 27/06/2007 526.75 11.77 526.75 61.23 5

2 CMCLTD. FPO 23/02/2004 GOI 190.44 26.25 190.44 26.25

3 COALINDIALTD. IPO 18/10/2010 GOI 15199.44 10 15199.44 99.99 8

4 DREDGINGCORP.OFINDIALTD. FPO 26/02/2004 GOI 221.2 20 221.2 98.56 7

5 ENGINEERSINDIALTD. FPO 27/07/2010 GOI 959.65 10 959.65 90.4

6 GAIL(INDIA)LTD. FPO 27/02/2004 GOI 1627.36 10 1627.36 67.34 5

HINDUSTANORGANIC

CPSEsatthetimeofIssue(CPSEsdefinedascompanieswherethedirectholdingoftheCentralGovernmentorofotherCPSEsis51%ormore)

DISINVESTMENTBYGOVERNMENTCOMPANIESTILLDATE

7 CHEMICALSLTD. FPO 10/11/1994 57.25 17 57.25 80 5

8 IBPCO.LTD. FPO

23/02/2004

GOI 350.66 2 6 350.66 26

9

INDIANPETROCHEMICALS

CORP.LTD. FPO 16/11/1992 320 9.66 320 80 7

10

INDIANPETROCHEMICALS

CORP.LTD. FPO 20/02/2004 GOI 1202.85 28.95 1202.85 33.95

11 MADRASFERTILIZERSLTD. IPO 12/05/1997 42.94 17.25 42.94 69.78 5

12 MADRASREFINERIESLTD. FPO 23/03/1994 118.47 10.3 118.47 67.7 5

13 MARUTIUDYOGLTD. IPO 12/06/2003 GOI 993.34 27.51 993.34 45.79 1

14 MOILLTD. IPO 26/11/2010

GOI,GOVT.OF

MAH.,

GOVT.OFM.P. 1237.51 20 1237.51 100

Page1


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SL.NO. COMPANY





15

NATIONALTHERMALPOWER

CORP.LTD. IPO 07/10/2004 GOI 2684.07 5.25 2684.07 5.25 5368.15 100

16 NHPCLTD. IPO 07/08/2009 GOI 2012.85 4.55 4025.7 9.09 6038.55 100 8

17 NMDCLTD. FPO 10/03/2010 GOI 9930.45 8.38 9930.45 98.38

18 NTPCLTD. FPO 03/02/2010 GOI 8480.1 5 8480.1 89.5

19 OIL&NATURALGASCORP.LTD. FPO 05/03/2004 GOI 10542.4 9.96 10542.4 84.11 7

20 OILINDIALTD. IPO 07/09/2009 2777.25 11 2777.25 88.13 7

21 POWERFINANCEC OR P. LT D. IP O 31/01/2007 997.19 10.22 997.19 100 8

. . . . . . . .

23POWER

GRID

CORP.OF

INDIA

LTD. IPO 10/09/2007 GOI 994.82 4.55 1989.63 9.09 2984.45 100 8

24

POWERGRIDCORP.OFINDIA

LTD. FPO 09/11/2010 GOI 3721.17 9.09 3721.17 9.09 7442.34 86.36 6

25

POWERTRADINGCORP.OFINDIA

LTD. IPO 01/03/2004 93.6 39 93.6

26

RURALELECTRIFICATION

CORP.LTD. IPO 19/02/2008 GOI 819.63 9.09 819.63 9.09 1639.26 100 8

27

RURALELECTRIFICATION

CORP.LTD. FPO 19/02/2010 GOI 882.51 4.35 2647.53 13.04 3530.04 81.82

28

SHIPPINGCORP.OFINDIA

LTD.,THE FPO 30/11/2010 GOI 582.45 9.09 582.45 9.09 1164.9 80.12 6

29 SJVNLTD. IPO 29/04/2010 GOI 1062.74 10.03 1062.74 100 8

30

TAMILNADU

TELECOMMUNICATIONSLTD. IPO 09/05/1991 5 46.6 5

31 VIDESHSANCHARNIGAML TD . FP O 20/09/1999 GOI 75 1.05 75 54.02 5

SUBTOTAL 64915.2 24842.29 89757.49

Page2


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SL.NO. COMPANY





GDRs/Spillovers

1 GAIL(INDIA)LTD. GDR 199900 GOI 945 15.98 945 83.32 6

2

MAHANAGARTELEPHONE

NIGAMLTD. GDR 199798 GOI 910 7 .13 910 63.35 5

3 OIL&NATURALGASCORP.LTD. Spillove 200405 GOI 15.99 15.99 NA NA

4 VIDESHSANCHARNIGAML TD . GD R 199697 GOI 379.67 2.94 379.67 NA NA

5 VIDESHSANCHARNIGAML TD . GD R 199899 GOI 783.68 7.54 783.68 NA NA

. .TOTAL 67949.54 92791.83

1 ALLAHABADBANK IPO 23/10/2002 100 28.84 100 100 7

2 ALLAHABADBANK FPO 06/04/2005 820 22.39 820 71.16 5

3 ANDHRABANK IPO 14/02/2001 150 33.33 150 100 6

4 ANDHRABANK FPO 16/01/2006 765 17.53 765 62.5 5

5 BANKOFBARODA IPO 05/12/1996 850 33.78 850 100 6

6 BANKOFBARODA FPO 16/01/2006 1633 19.49 1633 66.83 5

7 BANKOFINDIA IPO 21/02/1997 675 23.47 675 100 7

8 BANKOF

MA HAR ASHTRA IPO

25/02/2004

230 23.23 230 100 7

9 CANARABANK IPO 18/11/2002 385 26.83 385 100 7

10 CENTRALBANKOFINDIA IPO 24/07/2007 816 19.8 816 100

11 CORPORATIONBANK IPO 03/10/1997 304 31.67 304 100 6

12 DENABANK IPO 28/10/1996 180 29.01 180 100 7

PSBsatthetimeofIssue(PSBsdefinedasBankswherethedirectholdingoftheCentral/StateGovernmentorotherPSBsis51%ormore)

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SL.NO. COMPANY





13 DENABANK FPO 24/01/2005 216 27.89 216 70.99 5

14 GICHOUSINGFINANCELTD. IPO 19/12/1994 22.54 25.05 22.54

15 IDBIBANKLTD. IPO 09/02/1999 72 28.57 72

16 INDBANKHOUSINGLTD. IPO 07/10/1991 2.4 24 2.4

17

INDBANKMERCHANTBANKING

SERVICESLTD. IPO 18/03/1994 36.02 49 36.02

18 INDIANBANK IPO 05/02/2007 782.14 20 782.14 100

19 INDIANOVERSEASBANK IPO 25/09/2000 111.2 25 111.2 100

20 INDIANOVERSEASBANK FPO 05/09/2003 240 18.36 240 75 6

21

JAMMU&KASHMIRBANK

LTD.,THE IPO

13/05/1998

70.3 38.14 70.3 85.91 5

22 LICHOUSINGFINANCELTD. IPO 15/09/1994 113.51 25.22 113.51

23 ORIENTALBANKOFCOMMERCE IPO 05/10/1994 360 31.52 360 100 6

24 ORIENTALBANKOFCOMMERCE FPO 25/04/2005 1450 23.15 1450 66.48 5

25 PUNJAB&SINDBANK IPO 13/12/2010 470.82 17.93 470.82 100 8

26 PUNJABNATIONALBANK IPO 21/03/2002 164.49 20 164.49 100

27 PUNJABNATIONALBANK FPO 07/03/2005 3120 23.17 3120 80 6

28 SBIHOMEFINANCELTD. IPO 15/02/1993 4.6 30.65 4.6

29

STATEBANKOFBIKANER&

JAIPUR FPO

20/11/1997

65.94 24.42 65.94 99.21

Page4


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SL.NO. COMPANY





30 STATEBANKOFTRAVANCORE FPO 08/12/1997 69.24 23.08 69.24 1.5

31 SYNDICATEBANK IPO 25/10/1999 125 26.48 125 100 7

32 SYNDICATEBANK FPO 07/07/2005 250 9.58 250 73.52 6

33 UCOBANK IPO 03/09/2003 240 25.02 240 100 7

34 UNIONBANKOFINDIA IPO 20/08/2002 288 39.13 288 100 6

35 UNIONBANKOFINDIA FPO 15/02/2006 495 8.91 495 60.85 5

36 UNITEDBANKOFINDIA IPO 23/02/2010 325.15 15.8 325.15 100

37 VIJAYABANK IPO 27/11/2000 100 27.84 100 100 7

. .

SUBTOTAL

0 16342.36 16342.36

1

INDUSTRIALCREDIT&

INVESTMENTCORP.OFINDIA

LTD. FPO 13/02/1991 82 28.96 82

2

INDUSTRIALDEVELOPMENT

BANKOFINDIA FPO 05/07/1995 GOI 187.46 2.16 1747.2 20.12 1934.66 100 7

3

INDUSTRIALFINANCECORP.OF

INDIALTD.,THE IPO 07/12/1993 525 42.42 525

4

SHIPPINGCREDIT&INVESTMENT

CO.OFINDIALTD. IPO 04/02/1991 25 33.33 25

5TOURISM

FINANCE

CORP.OF

INDIALTD. IPO 26/09/1994 51 25.36 51

SUBTOTAL 187.46 2430.2 2617.66

PSFIsatthetimeofIssue(PSFIsdefinedasFinancialInstitutionswherethedirectholdingoftheCentralGovernmentorotherPSFIsis51%ormore)

Page5


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SL.NO. COMPANY





1

GUJARATINDUSTRIESPOWER

CO.LTD. FPO 13/10/2005 200 19.45 200

2

GUJARATMINERAL

DEVELOPMENTCOR P.LTD. IPO 14/10/1997

STATEGOVT.

OFGUJARAT 107.48 26 87.72 100

3

GUJARATSTATEFINANCIAL

CORP. IPO 11/02/1997 47 24.71 47 68.56 5

4 GUJARATSTATEPETRONETLTD. IPO 24/01/2006 372.6 25.45 372.6

SLPEsatthetimeofIssue(SLPEsdefinedascompanieswherethedirectholdingoftheStateGovernmentorotherSLPEsis51%ormore)

. . . . . .

6OPTEL

TELECOMMUNICATIONS

LTD. IPO 30/06/1995 43.75 25 43.75

7 PUNJABCOMMUNICATIONSLTD. IPO 24/10/1994 105.27 26.17 105.27

8 PUNJABWIRELESSSYSTEMSLTD. IPO 27/10/1993 15.02 58.23 15.02

9

TAMILNADUNEWSPRINT&

PAPERSLTD. IPO 27/11/1995 220 28.57 220 48.89 3

SUBTOTAL 107.48 1023.9 1111.61

1 ICICILTD. FPO 09/09/1999 275.21 6.83 275.21

2

INFRASTRUCTURE

DEVELOPMENTFINANCECO.LTD. IPO 15/07/2005 GOI 301.24 7.89 408 10.69 1372.24 34.91 2

3 PETRONETLNGLTD. IPO 01/03/2004 391.47 34.8 391.47

SUBTOTAL 301.24 1074.68 2038.92

GRANDTOTAL 68545.72 45713.43 114902.39

OtherCompanieswhereCentraland/orStateGovernmentsand/orGovernmentCompaniesand/orGovernmentFinancialInstitutionshadthesinglelargestshareholdingatthetimeofissue

Page6


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NOTES


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