Employees of Coal India and its eight subsidiaries are being ‘helped’ to open demat accounts as the company is scheduled to come out with its IPO in the next few months
In an out-of-the-box idea, Coal India Ltd (CIL), which is planning an Initial Public Offering (IPO) in the foreseeable future, is helping employees to open depository accounts to eliminate last-minute barriers to subscription. The move could possibly help the PSU get a better response to its public issue, especially since shares are expected to be offered at a 5% discount. CIL, which has an employee base of a massive 3.98 lakh, has negotiated excellent rates with various Depository Participants (DPs) including Stock Holding Corporation of India Ltd (SHCIL) and others. Some of them are offering to open the demat accounts free of charge and will also waive account maintenance charges for the first year.
Disinvestment secretary Sumit Bose, who has the tough job of ensuring successful disinvestment, says that the effort of facilitating employee participation started with the National Mineral Development Corp (NMDC) but it was unfortunately done too late. CIL has however got an early start on this effort. It has also asked the National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) to conduct investor-education seminars to generate interest among employees.
Given the pathetic state of retail investor participation in India's capital market, the PSU effort will boost the investor population.
Madhabi Puri Buch, CEO of ICICI Securities, lauded CIL's proactive effort and said, "At the least, operational barriers should not come in the way of employees being able to subscribe to the issue. The aggregation of demand had helped the company negotiate excellent terms for its employees with various market intermediaries. Also, if CIL planned to offer stock options in the future, the demat accounts would make the process easier." While the employees would ultimately decide whether they want to open an account or invest in the company shares, even a small conversion of the employee population would be a big boost. Whether it actually leads to a big boost in subscriptions remains to be seen.
According to a senior official from CIL, who did not wish to be quoted, the company had received about 36 proposals from various depository participants and banks, including the ones with which they have their salary account, for opening demat accounts for its employees. "We have not mandated anyone to open demat accounts for our employees. We are just helping out our employees in the process and it is completely up to them (the employees) where they want to open their demat accounts," the official added.
Despite economic prosperity and multiplying 24-hour business channels, retail investors are staying out of IPOs, mutual funds and pension funds-gypped by self-serving intermediaries and irritated by cumbersome rules of unaccountable regulators. According to a report by the Swarup Committee, out of India's 188 million investors holding financial assets, only 8 million participate in the debt and equity market, including mutual fund and market-linked insurance products. (see: http://www.suchetadalal.com/?id=6653aa01-572c-d539-4b865e30293d&base=sections&f).
This had led to poor response by retail investors to many IPOs or follow-on public offers (FPOs). Earlier this year, National Thermal Power Corporation (NTPC) managed to get a subscription of 1.2 times for its FPO with a retail participation of just 16% of the total 42.8 million shares reserved for the retail investors' category. For its total shares on offer, NTPC received a dismal 80,000 applications from retail investors all over the country. In order to avoid such a fiasco, the government is now resorting to some out-of-the-box methods like helping employees to open demat account so that they can subscribe to IPOs and FPOs of PSUs.
With a growing number of corporates tapping the capital markets, equity-raising rose to $23 billion in 2009 compared with $14 billion the previous year. In 2010, issuances have already crossed $15 billion. With the government proposing that listed companies would have to reach a minimum 25% level by an annual addition of not less than 5% to public holdings, there could be a further increase in capital raisings.
According to an estimate by Citi India, about $30 billion of capital would be required to be raised by BSE 500 companies, of which $26 billion is in the PSU space and the remaining in the private space. "While there are concerns that public offers would crowd out liquidity for genuine borrowers, an offset could be India's high savings rate, which is primarily held by the household sector. Moreover, savings in equity markets stood at 3.8% of total financial savings in FY09, suggesting potential for growth," said Rohini Malkani, economist, Citi India, in a report.
State-run CIL is coming out with its IPO in the next few months and is busy preparing its draft red herring prospectus (DRHP). The Union government is divesting its 10% stake in Coal India through a 100% book-building process in domestic markets.
Around 3.98 lakh employees of CIL and its eight subsidiaries will be offered 1% of the total equity. These employees will also get a 5% concession in the IPO to become stakeholders in the company. This not only prompted the employees but also some depository participants and banks to rush for opening demat accounts.
CIL, which is engaged in the production and marketing of coal and coal products, has a paid-up equity capital of Rs6,316.36 crore. According to media reports, CIL's IPO is likely to come to the market by end-September and its valuation will be decided by the group of ministers.
Last month, the Cabinet Committee on Economic Affairs also decided to allow 5% price concession to retail investors in order to encourage greater public ownership of public sector companies. The government has also approved divestment in Hindustan Copper Ltd. At present, the government holds 99.59% stake in Hindustan Copper and 0.57% shares in the divestment will be reserved for employees. After disinvestment, the government stake in CIL will come down to 90% and in Hindustan Copper to 81.44% and the government's kitty will go up by about Rs16,000 crore.
In May, the government announced measures to streamline and speed up the process of divesting stake in public sector units, in order to meet the Rs40,000-crore target from disinvestment proceeds in FY11. So far, the government has raised Rs1,000 crore from its divestment in Satluj Jal Vidyut Nigam Ltd in this fiscal.
The department of disinvestment is already working on the disinvestment of two other large State-run units, including Engineer's India Ltd and Steel Authority of India Ltd (SAIL), which are expected to hit the market in the next few months.
About six other public sector enterprises including Indian Oil Corp (IOC), MMTC Ltd, Rashtriya Ispat Nigam Ltd (RINL), Shipping Corp of India Ltd (SCI), Power Grid Corp of India Ltd and Manganese Ore (India) Ltd are also on the government's disinvestment programme for the year.
The IPO received just 1.83 lakh bids from the total reserved quota of 1.38 crore shares on offer
Hindustan Media Ventures (HMVL), the publisher of Hindi daily ‘Hindustan’ has received a dismal response for its initial public offer (IPO) on day two of the issue.
The retail quota received bids for 1.78 lakh shares from the total 49.79 lakh shares on offer. The response from the non-institutional investor category was poorer. The NII category received only 5,720 bids from the total reserved quota of 16.59 lakh shares. Similarly, qualified institutional buyers (QIBs) have steered clear from bidding. This category has 71.81 lakh shares on offer. The QIB quota received zero subscription.
Overall, the issue has been subscribed 0.01 times as on 6 July 2010. The IPO closes on 7 July 2010. HMVL has set the price band at Rs162-Rs175 per share and plans to raise Rs270 crore through this issue.
HMVL raised Rs46.10 crore by issuing 22.77 lakh shares to seven anchor investors at Rs166 per share on 2 July 2010.
Around 45,000 (or more than 1.5%) of RInfra’s Mumbai suburban customers have shifted to Tata Power over the last nine months. The load being shifted is being estimated to be as high as 150MW to 200MW. On the other hand, RInfra has witnessed a net addition of 70,000 customers over the past one year
Since October 2009, when Tata Power Company (TPC) was allowed to supply electricity to Reliance Infrastructure’s (RInfra’s) existing customers, around 45,000 or more than 1.5% of RInfra customers have shifted to TPC. Despite this shift, RInfra has witnessed a net addition of 70,000 customers during the past one year.
On 15 October 2009, the Maharashtra Electricity Regulatory Commission (MERC) had passed an interim order stating that TPC would be allowed to supply power to existing RInfra customers who wished to switch their power utilities.
Around 45,000 RInfra customers have switched over to TPC, according to official data released by RInfra. However, the company also states that it has added around 1.15 lakh new customers over the past one year. Thus, the utility has witnessed a net addition of 70,000 customers, excluding the switchovers to TPC. Out of this total 1.15 lakh customers, around 91,860 are residential; 23,345 are commercial and 389 are industrial customers. RInfra has added 60,000 consumers since the MERC order.
“The number of customers who have shifted from RInfra to TPC could amount to a load shift of around 150MW to 200MW,” said an ex-employee of RInfra, requesting anonymity. Officials from RInfra also told Moneylife that this quantum of load shift is the correct figure.
According to official figures released by RInfra, as of 24th June, during the year under review, there was an addition of over 1,00,000 consumers. During this year, there was a shift of around 30,000 consumers to TPC out of the total consumer base of over 27.3 lakh. This shift amounts to around 1.1% of RInfra’s total customer base up to March 2010.
Last year in December 2009, Moneylife had reported that around 1,500 customers had switched over to TPC from RInfra within a period of two months (see:http://www.moneylife.in/article/8/2701.html).The two companies have been locked in a bitter row for over two years on power supply to Mumbai’s suburbs. This fight further intensified with TPC being allowed to supply power to RInfra’s existing customers.
There has been regular reporting on campaigns driven by both camps against each other. In the most recent attempt, RInfra was accused of distributing booklets to its consumers (see:http://www.moneylife.in/article/8/6486.html) that claimed that TPC is planning to make Rs1,200 crore at the cost of Mumbai consumers by diverting the electricity produced for the city to areas outside the metropolis. In turn, TPC stated that RInfra is trying to restrain its consumers from switching over to Tata Power.