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IPO's : The Best Divestment Tool

SELLOFF TARGET SURPASSED! The government's divestment initiative got off to a flying start in 2004, with its decision to sell its stake in six public sector undertakings receiving huge response from the investors.

IPCL, CMC Ltd, IBP Ltd, Dredging Corporation of India, ONGC and Gail were the companies which took the public route in 2004. To the delight of the divestment ministry, the sale of government's stake in the PSUs helped it surpass the selloff target by almost Rs 900 crore (Rs 9 billion), as it mopped up Rs 15,400 crore (Rs 154 billion) for the fiscal.

The success of the public issues proved that the divestment drive could still proceed well even without adopting the strategic sales route. The IPOs ensured that even small investors could buy into big public companies. The IPOs also breathed life into the primary market.

The Centre sold its residual stakes in IPCL, CMC and IBP and offloaded 10 per cent stake each in Oil and Natural Gas Corporation, and Gas Authority of India Ltd. The government divested 20 per cent stake in Dredging Corporation.

Let us take a look at the progression of these public offers and a brief profile of the six blue-chip companies.

IPCL - A GOOD BEGINNING: The government's divestment drive in 2004 started with the public issue of the Reliance-controlled Indian Petrochemicals Corporation Ltd. The Centre shed its 24% residual stake in the company. The issue, which closed on February 27, was oversubscribed by 4.8 times.

The government, which fixed the offer price at Rs 170 per share, raised Rs 1,200 crore (Rs 12 billion) by selling 7.18 crore (71.8 million) shares of the company.

IPCL, which produces polymers, fibre and fibre intermediates and chemicals, is the second largest petrochemicals company in India after Reliance Industries Ltd.

Mukesh Ambani is the chairman of IPCL.

CMC - SAILING THROUGH: The offer to sell the government's 26.25 per cent stake in the Tata Group-controlled software firm CMC Ltd began on February 23, 2004.

The issue, which was oversubscribed by 11.3 times, received subscriptions for 4.49 crore (44.9 million) shares as against 39,80,000 (3.98 million) shares on offer. The Centre has raised Rs 190 crore (Rs 1.90 million) through the sale. The offer price was fixed at Rs 485 per share.

The Tatas had acquired a 51 per cent stake in CMC for Rs 151 crore (Rs 1.51 billion) in 2001. S. Ramadorai is the chairman of CMC. Ramanathan Ramanan is the managing director and chief executive officer, CMC.

IBP - A CAUTIOUS APPROACH: The government fixed a price of Rs 620 per share to sell its 26 per cent residual stake in Indian Oil Corporation’s subsidiary IBP to raise Rs 352 crore (Rs 3.52 billion). The issue was oversubscribed 2.8 times.

IOC holds a 53.6 per cent stake in marketing company IBP, which has more than 2,500 petrol outlets. IOC had acquired a 33.6 per cent stake in IBP by paying Rs 1,153.68 crore (Rs 11.54 billion) to the government. IBP offers petroleum products, lubricants, LPG, light diesel oil, naphtha, furnace oil, etc.

M S Ramachandran is the chairman of the company.

DREDGING CORP GETS TREMENDOUS RESPONSE: The IPO of Dredging Corporation will fetch Rs 221 crore (Rs 2.21 billion) to the government for its 20% stake in the company. The Centre fixed a cut-off price of Rs 400 per share for the issue, which was oversubscribed by a whooping 18 times. The government received bids for 6.6 crore (66 million) shares as against the issue size of 56 lakh (5.6 million) shares.

In terms of capacity, Dredging Corporation is the seventh largest dredging firm in the world. In India, the company is the undisputable leader in the dredging sector. It is expected to make full use of the government’s port development programme.

N K Gupta is the chairman and managing director of the firm.

GAIL - RICH DIVIDENDS: The sale of 10% stake in gas marketing and transmission company Gail (India) Limited will add Rs 1,620 crore (Rs 16.20 billion) to the government’s divestment kitty. The price was fixed at Rs 195 per share for the issue, which was oversubscribed by 9.28 times.

The Centre now holds 57.4 per cent in the company.

Gail, which is a major player in the gas marketing business in the country, also has interests in petrochemicals and LPG sectors. The company owns and operates the gas network HBJ pipeline. Proshanto Banerjee is the chairman of Gail.

ONGC, THE MOTHER OF ALL IPOs: The ONGC public offer is the largest public offering so far in the history of Indian markets.

The much anticipated sale of government’s 10% stake in Oil and Natural Gas Corporation got off to a great start on March 5, with the issue fully subscribed within 11 minutes.

The ONGC issue, which was oversubscribed by 5.88 times, mopped up Rs 10,534 crore (Rs 105.34 billion), with the government fixing a cut-off price of Rs 750 per share.

ONGC, which was set up as a commission on August 14, 1956, is the highest profit making corporation in India. It had the distinction of becoming the first Indian corporate to register a five-digit profit figure of Rs 10,529 crore (Rs 105.29 billion) in 2002-03.

Subir Raha is the chairman of the company.