Disinvestment by Government Companies

Private & Confidential

September 2011
Disinvestment by
Government Companies
A Process

Keynote Corporate Services Limited

“Disinvestment by Government Companies”: A Process

Disclaimer
This document is for illustration purpose only. This is a compilation of information relating to
disinvestment process by Government of India and various methodologies adapted / to be adapted for
the said purpose. This contains certain historical data obtained from authenticated sources available
publically. Keynote Corporate Services Limited (Keynote) does not guarantee the correctness for the said
data. This is aimed at providing general information about the disinvestment, the process, the data on
disinvestments made in India by Public sector Undertakings (PSU’s) till date.
Nothing contained herein is, or shall be relied upon as a promise or representation. Any reproduction of
the contents of this presentation in whole or in part, or disclosure to the third parties of any of its
contents, without prior written consent of Keynote is prohibited.
Keynote does not make any expressed or implied representation or warranty and no responsibility or
liability is accepted by the Company with respect to the accuracy, completeness or the underlying
assumptions on which they are based, or achieving returns as per the terms set out here.


Table of Contents
1 Introduction 1
2 Different Approaches to Disinvestments 3
2.1 Minority Disinvestment 3
2.2 Majority Disinvestment 3
2.3 Complete Privatization 3
3 Disinvestments A historical Perspective 4
3.1 Period from 1991‐92 to 2000‐01 4
3.2 Period from 2001‐02 to 2003‐04 5
3.3 Period from 2004‐05 to 2008‐09 5
3.4 2009‐10 onwards 5
4 The Process of Disinvestment 6
4A Comparison of Process of making Public Offering by non‐Government and
Government companies
9
5 Preparing a PSU for Disinvestment 10
5.1 Eligibility Norms 10
5.2 Alternative Norms 11
5.3 Exemptions to certain category of entities from the eligibility norms 11
5.4 Fast Track Issue 11
5.5 Minimum Public Shareholding & Relaxations given to Public Sector
Companies
12
5.6 Corporate Governance Requirements 12
5.7 Other Key Steps 13
6 Exceptions given to Government Companies under SEBI ICDR Regulations 14
6.1 Eligible shares for offer (regulation 26(6)) 14
6.2 Face value of equity shares (31(1b)) 14
6.3 Securities ineligible for minimum promoters contribution (33(1b)(iii)) 15
6.4 Minimum offer to public(41(2)) 15
6.5 Financial information of Group Companies( disclosures under Schedule VIII
Part A)
15
6.6 Outstanding litigations involving the promoter and group companies
(disclosures under Schedule VIII Part A)
15
7 Marketing & selling strategy 16
7.1 Marketing Strategy 16
7.2 Selling Strategy 16
8 Conclusion 18
A Annexure 1– Disinvestment by Government Companies till date 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. By
then, 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 and
financial institutions in the public sector,
Initially disinvestment through Auction Method was made by offering shares to Mutual
funds and Financial Institutions. These PSU’s were permitted to be listed and traded on
stock exchanges enabling retail and other investors to invest in these blue chip PSU’s
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 Offer”
o “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 sector
disinvestment.
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 disinvestment
process;

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• To monitor the progress of disinvestment process and take necessary measures
and 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 and
non-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.
Government’s 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 from
1991-92 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 a
strategic 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 38,500
crore 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 of
Disinvestment (DOD). It was converted from an independent Ministry to the
Department of Disinvestment (DOD) under the Ministry of Finance. DOD is responsible
for taking each proposal to the Cabinet Committee on Disinvestment (CCD), the highest
decision 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 the
pricing is optimized through bidding. It is less time consuming and involves low
transaction cost. It is targeted at the institutional investors. In the initial rounds of
disinvestment, Government divested its stake in PSUs thorough this method.
4.2.b Strategic sale implies selling of a substantial block of government holdings to a
single party, which would not only acquire substantial equity holdings of up to 51
per cent but also bring in the necessary technology for making the public sector
enterprise viable and competitive in the global market. Alternatively, Strategic Sale
includes two elements, one is transfer of block of shares to a Strategic Partner and
the second is transfer of management control to the Strategic Partner.
4.2.c Market sale signifies sale of shares to individuals, financial institutions or
private sector business, which can then be traded in the market. It includes the sale
of 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 the
public by an unlisted company.
4.2.c.(ii) Offer for sale is offer of shares by existing shareholder(s) of a company
to the public for subscription, through an offer document.
4.3 The next step involves selection and appointment of several intermediaries that are
involved in the process, the most important being the Book running Lead Manager or
the BRLM. Other intermediaries that are required in an Initial public Offering include
Bankers to the Issue, Registrar to the Issue, Legal Advisers–Domestic and International,
Auditors and Advertising Agency/Public Relation Agency. There are separate
individual 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 “Initial
Public Offer”.
(ii) Structure the “Initial Public Offer” in conformity with the prevailing framework
and 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 and
complete 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 shares
and 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 of
the 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 the
“Initial 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 SEBI
Regulations.
(xvii) Render such other assistance as may be required in connection with the IPO.

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4A            Comparison of Process of making Public Offering by non‐Government and
                                                               Government companies
Particulars Non Government Company Government Company
Objective To raise resources to fund the
objects such as
• project implementation
• working capital
• repayment of loan
• acquisitions etc
The major objective is to raise resources
for the government to fund Fiscal
deficit.
Origination Origination is Management specific
and a one step process as it involves
Promoter’s decision.
Origination depends on Government
policies which are specific to a Sector
and a Company. It involves complex
situations of identifying a target which
is marketable.
Appointment
of
Intermediaries
Flexible and speedy process as
decision making is swift on account
of direct involvement of Promoters
& management.
Being Government, the process is less
flexible and involves a tendering
approach. The parameters of eligibility
criteria’s have to be determined for
selection of various intermediaries
followed by a technical & financial
evaluation process. It is a time
consuming multi step process.
IPO
Preparedness
IPO preparedness is easy to
establish as focused approach is
followed.
It involves various levels of internal
clearances and coordination amongst
several government departments &
specific committees.
Offer
Parameters
No specific exemptions except in
case of follow on offers by
companies under a Fast Track Issue.
Exemptions are available with respect
to minimum dilution and eligibility for
pre-IPO holding for offer for sale & face
value of shares of PSUs engaged in
infrastructure sector. Banks are exempt
from entry norms.
Offer
Document
No specific exemptions. Exemptions available with respect to
disclosures of group company’s
information and litigation involving
promoters and group companies.
Statutory
Clearances /
Approvals
Hurdles in the form of detailed
scrutiny.
Swift clearances. It has been observed
that statutory approvals/ clearances
required for launching an IPO are
within the stipulated time prescribed in
regulations.
Marketing Need a higher degree of marketing
to garner participation.
Government pedigree helps in
marketing the issue if the issue is priced
attractively. IPOs are better marketable
than FPOs. Marketing FPOs is a great
challenge 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 (PSU’s) and
no Public Sector (non PSU’s) 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 compliance
with listing agreements. SEBI ICDR provides for certain exemptions in applicability of
regulations in respect of PSUs which are summarized as under:
• PSU’s can make initial public offer (IPO) with dilution of at least 10 per cent of
the equity to public in terms of offer document.
• Eligibility for holding period of one year of shares which are offered for sale is
relaxed in case of PSU’s engaged in infrastructure sector.
• The face value of shares of PSU’s engaged in infrastructure sector can be less
than Rs 10 per share irrespective of issue price.
• All the shares held by the promoters before making an IPO are eligible for
minimum promoter contribution in case of PSUs
• Disclosures of financial information of the group companies in the offer
document in respect of PSUs is exempt
• Disclosures of information on outstanding litigation involving promoter/group
companies by PSUs are exempt.
• Banks are exempt from entry norms prescribed
It 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 years
c) 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 company’s 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 mandatorily
allotted to the Qualified Institutional Buyers (QIBs)
OR
• The “project” is appraised and participated to the extent of 15% by FIs/Scheduled
Commercial 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 crore
OR
• 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 document
with 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 or
kind 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 at
least 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 determine
ongoing 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 of
shares, 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 it’s 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, if
required
• Memorandum and Articles of Association to be amended , if any, in line with the
requirement of the Stock Exchanges
• Check if any of the directors of the issuer is associated with the securities market in
any 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 for
dematerialization 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 with
the 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 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;
(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, an
issuer 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 television
advertisements 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 brokers
7.1.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 country’s leading brokers/ Analysts etc.
• A nationwide network of brokers to be involved in marketing the issue
7.1.c Facilitate Bidding
• Marketing the issue through the Syndicate Members, Broker and Sub-Broker
network
• More than 700 Bidding Centres covering nearly 75 cities
7.2 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

17

• The issue stationery quantities and distribution needs to be timed well – far-flung
locations 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 – suitable
advertisement channels to be employed
• Extensive PR activities just after filing of DRHP to inform investors about the
company
• Mobilizing distribution network just after filing of DRHP to ensure proper buy-in
from all the distributors
• Appropriate timing for the communication of Issue Price
7.2.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, Insurance
Companies & Banks etc.
• QIB’s Set the tone for the IPO – Anchor investors who provide initial impetus to the
Book and predict success of the issue
• QIB’s 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.

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 are
conducive 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.

19

Annexure

SL.NO. COMPANY
IPO /
FPO OPENING DIVESTMENT DIVESTMENT DIVESTMENT FRESH CAPITAL FRESH CAPITAL ISSUE AMOUNT % GOVT. % GOVT. VALUE OF
(NAME AS AT THE TIME OF
ISSUE) DATE/ FINANCIAL YEAR BY (Rs.crore) AS % OF POST (Rs. crore) AS % OF POST (Rs.crore) HOLDING HOLDING GOVT. HOLDING
ISSUE CAPITAL ISSUE CAPITAL PRIOR TO AFTER ISSUE AS ON ISSUE
ISSUE DATE (Rs.crore)
1 BHARAT EARTH MOVERS LTD. FPO     27/06/2007   526.75 11.77 526.75 61.23 54.03 2418.75
2 CMC LTD. FPO     23/02/2004   GOI 190.44 26.25 190.44 26.25 0 0
3 COAL INDIA LTD. IPO     18/10/2010   GOI 15199.44 10 15199.44 99.99 89.99 139275.82
4 DREDGING CORP.OF INDIA LTD. FPO     26/02/2004   GOI 221.2 20 221.2 98.56 78.56 879.91
5 ENGINEERS INDIA LTD. FPO     27/07/2010   GOI 959.65 10 959.65 90.4 80.4 7856.12
6 GAIL (INDIA) LTD. FPO     27/02/2004   GOI 1627.36 10 1627.36 67.34 57.34 9456.27
HINDUSTAN ORGANIC
   CPSEs at the time of Issue (CPSEs defined as companies where the direct holding of the Central Government or of other CPSEs is 51% or more)
DISINVESTMENT BY GOVERNMENT COMPANIES TILL DATE
7 CHEMICALS LTD. FPO     10/11/1994   57.25 17 57.25 80 58.62 197.41
8 IBP CO.LTD. FPO     23/02/2004   GOI 350.66 26 350.66 26 0 0
9
INDIAN PETROCHEMICALS
CORP.LTD. FPO     16/11/1992   320 9.66 320 80 71.87 2380.8
10
INDIAN PETROCHEMICALS
CORP.LTD. FPO     20/02/2004   GOI 1202.85 28.95 1202.85 33.95 5 210.99
11 MADRAS FERTILIZERS LTD. IPO     12/05/1997   42.94 17.25 42.94 69.78 57.74 143.78
12 MADRAS REFINERIES LTD. FPO     23/03/1994   118.47 10.3 118.47 67.7 51.81 618.13
13 MARUTI UDYOG LTD. IPO     12/06/2003   GOI 993.34 27.51 993.34 45.79 18.28 660.3
14 MOIL LTD. IPO     26/11/2010
GOI, GOVT.OF
MAH.,
GOVT.OF M.P. 1237.51 20 1237.51 100 80 5040
Page 1

SL.NO. COMPANY
IPO /
15
NATIONAL THERMAL POWER
CORP.LTD. IPO     07/10/2004   GOI 2684.07 5.25 2684.07 5.25 5368.15 100 89.5 45753.73
16 NHPC LTD. IPO     07/08/2009   GOI 2012.85 4.55 4025.7 9.09 6038.55 100 86.36 38244.13
17 NMDC LTD. FPO     10/03/2010   GOI 9930.45 8.38 9930.45 98.38 90 107052.55
18 NTPC LTD. FPO     03/02/2010   GOI 8480.1 5 8480.1 89.5 84.5 140740.7
19 OIL & NATURAL GAS CORP.LTD. FPO     05/03/2004   GOI 10542.4 9.96 10542.4 84.11 74.11 79303.03
20 OIL INDIA LTD. IPO     07/09/2009   2777.25 11 2777.25 88.13 78.43 19802.95
21 POWER FINANCE CORP.LTD. IPO     31/01/2007   997.19 10.22 997.19 100 89.78 8758.83
22 POWER FINANCE CORP LTD FPO 10/05/2011 GOI 1144 55 4 35 3433 65 13 04 4578 2 89 78 73 72 19753 1522 POWER FINANCE CORP.LTD. FPO     10/05/2011   GOI 1144.55 4.35 3433.65 13.04 4578.2 89.78 73.72 19753.15
23
POWER GRID CORP.OF INDIA
LTD. IPO     10/09/2007   GOI 994.82 4.55 1989.63 9.09 2984.45 100 86.36 18901.52
24
POWER GRID CORP.OF INDIA
LTD. FPO     09/11/2010   GOI 3721.17 9.09 3721.17 9.09 7442.34 86.36 69.42 28926.22
25
POWER TRADING CORP.OF INDIA
LTD. IPO     01/03/2004   93.6 39 93.6
26
RURAL ELECTRIFICATION
CORP.LTD. IPO     19/02/2008   GOI 819.63 9.09 819.63 9.09 1639.26 100 81.82 7376.67
27
RURAL ELECTRIFICATION
CORP.LTD. FPO     19/02/2010   GOI 882.51 4.35 2647.53 13.04 3530.04 81.82 66.8 13587.9
28
SHIPPING CORP.OF INDIA
LTD.,THE FPO     30/11/2010   GOI 582.45 9.09 582.45 9.09 1164.9 80.12 63.75 4157.16
29 SJVN LTD. IPO     29/04/2010   GOI 1062.74 10.03 1062.74 100 89.97 9676.23
30
TAMILNADU
TELECOMMUNICATIONS LTD. IPO     09/05/1991   5 46.6 5
31 VIDESH SANCHAR NIGAM LTD. FPO     20/09/1999   GOI 75 1.05 75 54.02 52.97 3774.04
SUB TOTAL 64915.2 24842.29 89757.49
Page 2

SL.NO. COMPANY
IPO /
   GDRs/Spillovers
1 GAIL (INDIA) LTD. GDR   1999‐00   GOI 945 15.98 945 83.32 67.34
2
MAHANAGAR TELEPHONE
NIGAM LTD. GDR   1997‐98   GOI 910 7.13 910 63.35 56.22
3 OIL & NATURAL GAS CORP.LTD. Spillove  2004‐05   GOI 15.99 15.99   NA NA
4 VIDESH SANCHAR NIGAM LTD. GDR   1996‐97   GOI 379.67 2.94 379.67   NA NA
5 VIDESH SANCHAR NIGAM LTD. GDR   1998‐99   GOI 783.68 7.54 783.68   NA NA
SUB TOTAL 3034 34 3034 34SUB TOTAL 3034.34    3034.34
TOTAL 67949.54 92791.83
1 ALLAHABAD BANK IPO     23/10/2002   100 28.84 100 100 71.16 246.7
2 ALLAHABAD BANK FPO     06/04/2005   820 22.39 820 71.16 55.23 2022.94
3 ANDHRA BANK IPO     14/02/2001   150 33.33 150 100 66.67 300
4 ANDHRA BANK FPO     16/01/2006   765 17.53 765 62.5 51.55 2250
5 BANK OF BARODA IPO     05/12/1996   850 33.78 850 100 66.22 1666
6 BANK OF BARODA FPO     16/01/2006   1633 19.49 1633 66.83 53.81 4508
7 BANK OF INDIA IPO     21/02/1997   675 23.47 675 100 76.52 2200.5
8 BANK OF MAHARASHTRA IPO     25/02/2004   230 23.23 230 100 76.77 760.2
9 CANARA BANK IPO     18/11/2002   385 26.83 385 100 73.17 1050
10 CENTRAL BANK OF INDIA IPO     24/07/2007   816 19.8 816 100 80.2 3306.24
11 CORPORATION BANK IPO     03/10/1997   304 31.67 304 100 68.33 656
12 DENA BANK IPO     28/10/1996   180 29.01 180 100 70.98 440.46
   PSBs at the time of Issue (PSBs defined as Banks where the direct holding of the Central/State Government or other PSBs is 51% or more)
Page 3

SL.NO. COMPANY
IPO /
13 DENA BANK FPO     24/01/2005   216 27.89 216 70.99 51.19 396.41
14 GIC HOUSING FINANCE LTD. IPO     19/12/1994   22.54 25.05 22.54
15 IDBI BANK LTD. IPO     09/02/1999   72 28.57 72
16 IND BANK HOUSING LTD. IPO     07/10/1991   2.4 24 2.4
17
INDBANK MERCHANT BANKING
SERVICES LTD. IPO     18/03/1994   36.02 49 36.02
18 INDIAN BANK IPO     05/02/2007   782.14 20 782.14 100 80 3128.76
19 INDIAN OVERSEAS BANK IPO     25/09/2000   111.2 25 111.2 100 75 333.6
20 INDIAN OVERSEAS BANK FPO     05/09/2003   240 18.36 240 75 61.23 800.64
21
JAMMU & KASHMIR BANK
LTD.,THE IPO     13/05/1998   70.3 38.14 70.3 85.91 53.15 97.95
22 LIC HOUSING FINANCE LTD. IPO     15/09/1994   113.51 25.22 113.51
23 ORIENTAL BANK OF COMMERCE IPO     05/10/1994   360 31.52 360 100 67.23 768
24 ORIENTAL BANK OF COMMERCE FPO     25/04/2005   1450 23.15 1450 66.48 51.09 3200
25 PUNJAB & SIND BANK IPO     13/12/2010   470.82 17.93 470.82 100 82.07 2196.67
26 PUNJAB NATIONAL BANK IPO     21/03/2002   164.49 20 164.49 100 80 657.95
27 PUNJAB NATIONAL BANK FPO     07/03/2005   3120 23.17 3120 80 61.47 8277.41
28 SBI HOME FINANCE LTD. IPO     15/02/1993   4.6 30.65 4.6
29
STATE BANK OF BIKANER &
JAIPUR FPO     20/11/1997   65.94 24.42 65.94 99.21 75 202.5
Page 4

SL.NO. COMPANY
IPO /
30 STATE BANK OF TRAVANCORE FPO     08/12/1997   69.24 23.08 69.24 1.5 1.05 3.15
31 SYNDICATE BANK IPO     25/10/1999   125 26.48 125 100 73.52 346.97
32 SYNDICATE BANK FPO     07/07/2005   250 9.58 250 73.52 66.47 1734.84
33 UCO BANK IPO     03/09/2003   240 25.02 240 100 74.98 719.23
34 UNION BANK OF INDIA IPO     20/08/2002   288 39.13 288 100 60.87 448
35 UNION BANK OF INDIA FPO     15/02/2006   495 8.91 495 60.85 55.43 3080
36 UNITED BANK OF INDIA IPO     23/02/2010   325.15 15.8 325.15 100 84.2 1758.44
37 VIJAYA BANK IPO     27/11/2000   100 27.84 100 100 72.16 259.24
38 VIJAYA BANK FPO 09/10/2003 240 23 07 240 70 02 53 87 560 4438 VIJAYA BANK FPO     09/10/2003   240 23.07 240 70.02 53.87 560.44
SUB TOTAL 0 16342.36 16342.36
1
INDUSTRIAL CREDIT &
INVESTMENT CORP.OF INDIA
LTD. FPO     13/02/1991   82 28.96 82
2
INDUSTRIAL DEVELOPMENT
BANK OF INDIA FPO     05/07/1995   GOI 187.46 2.16 1747.2 20.12 1934.66 100 72.69 6312.54
3
INDUSTRIAL FINANCE CORP.OF
INDIA LTD.,THE IPO     07/12/1993   525 42.42 525
4
SHIPPING CREDIT & INVESTMENT
CO.OF INDIA LTD. IPO     04/02/1991   25 33.33 25
5
TOURISM FINANCE CORP.OF
INDIA LTD. IPO     26/09/1994   51 25.36 51
SUB TOTAL 187.46 2430.2 2617.66
   PSFIs at the time of Issue (PSFIs defined as Financial Institutions where the direct holding of the Central Government or other PSFIs is 51% or more)
Page 5

SL.NO. COMPANY
IPO /
1
GUJARAT INDUSTRIES POWER
CO.LTD. FPO     13/10/2005   200 19.45 200
2
GUJARAT MINERAL
DEVELOPMENT CORP.LTD. IPO     14/10/1997
STATE GOVT.
OF GUJARAT 107.48 26 87.72 100 74 305.92
3
GUJARAT STATE FINANCIAL
CORP. IPO     11/02/1997   47 24.71 47 68.56 51.62 98.18
4 GUJARAT STATE PETRONET LTD. IPO     24/01/2006   372.6 25.45 372.6
5 HARYANA FINANCIAL CORP LTD IPO 18/05/1995 20 26 24 94 20 26 73 11 54 88 44 58
   SLPEs at the time of Issue (SLPEs defined as companies where the direct holding of the State Government or other SLPEs is 51% or more)
5 HARYANA FINANCIAL CORP.LTD. IPO     18/05/1995   20.26 24.94 20.26 73.11 54.88 44.58
6
OPTEL TELECOMMUNICATIONS
LTD. IPO     30/06/1995   43.75 25 43.75
7 PUNJAB COMMUNICATIONS LTD. IPO     24/10/1994   105.27 26.17 105.27
8 PUNJAB WIRELESS SYSTEMS LTD. IPO     27/10/1993   15.02 58.23 15.02
9
TAMIL NADU NEWSPRINT &
PAPERS LTD. IPO     27/11/1995   220 28.57 220 48.89 34.92 268.89
SUB TOTAL 107.48 1023.9 1111.61
1 ICICI LTD. FPO     09/09/1999   275.21 6.83 275.21
2
INFRASTRUCTURE
DEVELOPMENT FINANCE CO.LTD. IPO     15/07/2005   GOI 301.24 7.89 408 10.69 1372.24 34.91 23.29 888.76
3 PETRONET LNG LTD. IPO     01/03/2004   391.47 34.8 391.47
SUB TOTAL 301.24 1074.68 2038.92
GRAND TOTAL 68545.72 45713.43 114902.39
   Other Companies where Central and/or State Governments and/or Government Companies and/or Government Financial Institutions had the single largest shareholding at the time of issue
Page 6


NOTES


KEYNOTE CORPORATE SERVICES LIMITED
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Tel: +91‐22‐3026 6000‐03
Fax: +91‐22‐2269 4323
www.keynoteindia.net

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