India, seeking to raise a record 400 billion rupees ($8.4 billion) from asset sales, is paying fees to brokers who sell stock in state-run companies after individual investors shunned offerings this year.
The government will pay brokers 0.35 percent of the value of the shares they sell to retail investors and 0.15 percent of stock marketed to high net-worth individuals, Disinvestment Secretary Sumit Bose, 56, said in an interview in New Delhi.
Bose, the official in charge of India’s asset-sale program, needs to bolster demand for offerings by Engineers India Ltd. and Coal India Ltd. as overseas investors pull the most funds out of India since October 2008. Individuals ordered 15 percent of the stock allocated to them in an 85 billion rupee sale by New Delhi-based NTPC Ltd. in February.
“The government has realized without enlisting the support of the broking community, it can’t ensure the response it wants for its share sales,” said Vijay Kumar Singhania, director at the Association of National Exchanges Members of India. “The move is aimed at ensuring wider participation after a lukewarm response to some share offers.”
Broker payments were previously included in the near-zero fees paid to investment banks managing the sales. Citigroup Inc., Morgan Stanley, Kotak Mahindra Capital Co., Edelweiss Capital Ltd., RBS Equities (India) Ltd. and UBS AG were paid 0.001 percent for arranging an offer by NMDC Ltd., Asia’s third- largest iron-ore producer by market value, in March, data compiled by Bloomberg show.
“We had an all comprehensive fees for the bankers taking into account expenses on printing, expenses on filing fees, expenses on retail,” said Bose. “There is no way we can keep tab on how much is actually being paid, this way we will be able to.”
NTPC, the nation’s biggest utility, in February attracted bids for 1.2 times the shares on sale. Hyderabad-based NMDC received orders for 1.25 times the stock offered in March.
In the same month, private-sector companies such as Mumbai- based IL&FS Transportation Networks Ltd. received bids of 33.1 times the stock on offer and Ahmedabad-based Pradip Overseas Ltd. got orders for 13.7 times.
“Retail is especially important because that is the cornerstone of the policy,” Bose said in his office on May 24. “The policy is public ownership” of shares of state-run companies, he said.
The next offering will take place in July, Bose said. The government has selected four banks to manage the sale of a 10 percent stake in Engineers India and the New Delhi-based company may file its offer document with the capital markets regulator in three to four weeks, he said.
Engineers India shares rose 1.2 percent to 319 rupees at 12:12 p.m. in Mumbai. NTPC gained 0.3 percent to 193.2 rupees. The Bombay Stock Exchange’s BSE-PSU Index of 54 state-owned stocks added 0.7 percent, compared with a 1.4 percent increase in the Bombay Stock Exchange’s Sensitive Index.
At least 29 companies worldwide from Hong Kong-based Swire Properties Ltd. to Americold Realty Trust of Atlanta have postponed or withdrawn share sales in the past month as Europe’s widening debt crisis helped spur the biggest surge in weekly stock-market volatility in at least two decades.
India’s benchmark Sensitive Index has lost more than 10 percent from its 2010 high on April 7, the common definition of a correction. Overseas portfolio investors sold $1.77 billion of Indian equities this month, according to the market regulator.
Initial public offerings in India have still advanced an average 6.2 percent in their first month of trading, beating the Sensex Index by 5.3 percentage points, data compiled by Bloomberg show. That’s more than three times the performance of U.S. IPOs, which have exceeded the Standard & Poor’s 500 Index by 1.5 points on average in the first month.
“Why should one get unduly worried at this stage” about global markets, said Bose. “We’ll see how it affects us.”