Disinvestment policy of Public Sector Companies

Recenty government came up with the disinvestment plan of three public sectors companies-NTPC, REC and NMDC to raise about 23000 Cr. But the FPO of all the three companies had a poor response from the retail investors and High net worth investors. Finally, local institutions have to come up to bailout the three PSUs. The major reasons for the poor response of the issue were:-

1.Use of French auction method:- Under the French auction method, institutional investors are free to bid above a certain floor price and the allotment would be on price- priority basis.
2.Poor Selection of Investment bankers on the basis of their bids.
3.Difference between the offer price and the market price was so narrow that it made no sense for the retail investors to invest.

Impacts:-

After the poor response of the FPO, disinvestment department reviewed the performance of the investment bankers and decided:-
1.Under the new set of rules being considered, 70% weight age will be given to the quality aspects of the Investment bank and only 30%to the cost of transactions fee quoted.
2.Use of pure auction route instead of French auction method:- In the pure auction, only minimum price is given to institutional investors with no ceiling. QIBs can bid any price above the floor price, but the retail investors and high net worth investors will receive the shares at the minimum price only.
3.15-20% discount could be given to the retail investors in order to attract them and set the right trend for the future disinvestments.