The Specified Undertaking of the Unit Trust of India (SUUTI) will pare holdings in ITC Ltd, Larsen and Toubro Ltd (L&T) and Axis Bank Ltd in the first phase of divesting minority stakes it owns in 51 companies.
The government, which detailed the sale strategy on Monday, also eased a conflict-of-interest clause for investment bankers to attract more bankers to the proposed sale.
SUUTI, an offshoot of the erstwhile state-run investment firm Unit Trust of India (UTI), has shares in 43 listed and eight unlisted firms. It holds an 11.17% stake in ITC, 8.16% in L&T and 11.53% in Axis Bank, according to a revised “request for proposal”, or RFP, released by the government.
Based on Monday’s closing prices, SUUTI’s holding in ITC is worth Rs.33,908.73 crore, in Axis Bank Rs.14,818.77 crore and L&T Rs.12,057.64 crore.
India’s Parliament bifurcated UTI in 2002, creating SUUTI and UTI Asset Management Co. Pvt. Ltd, the former holding the assured-return investment plans of UTI and the latter overseeing market-linked plans. The bifurcation took place after UTI’s US-64 investment scheme ran into trouble.
SUUTI has split the divestment programme into three parts.
Group A, which includes its holding in ITC, L&T and Axis Bank, will be up for divestment first.
Group B will include the eight unlisted firms in which SUUTI owns shares. Group C will hold the remaining 40 listed firms held by SUUTI.
A complete exit from Group A will fetch the government around Rs.60,785 crore based on Monday’s closing price.
The government is looking to appoint three investment bankers for a period of three years to complete the process of SUUTI exiting its holdings.
Group A stocks will be easier to exit since they are blue-chips. The bankers who win the mandate may need different strategies to sell shares in Group B and Group C companies.
The eight unlisted companies include National Securities Depository Ltd (NSDL), North Eastern Development Finance Corporation Ltd, NSDL e-Governance Infrastructure Ltd, Over the Counter Exchange of India, STCI Finance Ltd, Stock Holding Corp. of India Ltd, Unit Trust of India Investment Advisory Services Ltd and UTI Infrastructure Technology and Services Ltd.
SUUTI said the bankers will be required to advise on a method for the sale of its shareholding in the unlisted companies. Once it is approved by SUUTI, the process of the transaction will be initiated separately by SUUTI.
The RFP clarified that the bankers will not be required to carry out the transaction for group B firms as a part of the mandate.
In the case of Group C stocks, which includes smaller listed entities, bankers will need to provide regular equity research reports on each of these companies, along with the stock market outlook, said the RFP. SUUTI did not ask prospective bankers to submit any share sale proposal for these 40 firms.
Conflict of interest clause
The revised RFP by SUUTI also relaxed a key conflict-of-interest clause for bankers.
According to the earlier RFP, investment bankers participating in the SUUTI stake sale process were prohibited from accepting mandates from companies competing with SUUTI portfolio firms for a period of three years.
The new RFP has done away with this clause and only requires merchant bankers to intimate SUUTI and the government about potential conflicts of interest.
The revised RFP follows a meeting between SUUTI officials and merchant bankers on 15 July in Mumbai.
Bankers have been asked to submit their proposals by 10 August.
On 13 July, Mint reported that Life Insurance Corporation of India (LIC) will likely step in to buy between a third and half the equity assets of SUUTI.
The purchase from SUUTI could mean spending of betweenRs.25,000 crore and Rs.30,000 crore for the state-run insurer, and an equivalent windfall for the government, said the report.
The government has considered selling SUUTI assets several times in the past.
This time, the decision has been driven by the need to meet an ambitious divestment target and a conducive market environment.
The government has set a divestment target of Rs.56,500 crore for 2016-17, of which Rs.36,000 crore is expected to come from minority stake sales in state-owned companies. The remaining Rs.20,500 crore is expected to be raised through strategic sales in both profit-making and loss-making state-owned companies.
This story was first published on Livemint