Mumbai: The government has announced divestments of railways engineering and construction company Ircon International Ltd and defence shipbuilder Garden Reach Shipbuilders and Engineers Ltd through initial public offerings (IPOs) to collectively raise about ₹815 crore ($113.5 million).
The share sales come at a time when activity in the Indian IPO market has been subdued, despite more than 30 companies receiving the nod from markets regulator Securities and Exchange Board of India (Sebi).
Domestic companies raised ₹67,147 crore through IPOs last year, while so far this year, they raised only ₹28,508 crore, showed data from primary market tracker Prime Database.
According to two people involved in the two transactions, the IPOs reflect a major shift in the way the Department of Investment and Public Asset Management (DIPAM) has been managing share sales of government companies.
“Since the change in the leadership at DIPAM, the department has adopted a more pragmatic and proactive approach to divestment offerings. Unlike in the past, where the government would price the offerings aggressively, leaving very little, if nothing, on the table; this time around, DIPAM has been very receptive to investor opinion and has incorporated the same in its approach to pricing IPOs,” said one of the people cited above, requesting anonymity.
In May, the central government appointed a Gujarat cadre IAS officer Atanu Chakraborty as the new secretary at DIPAM, replacing Neeraj Kumar.
Chakraborty was previously the director general of hydrocarbons in the petroleum ministry.
According to the first person cited above, in both Ircon and Garden Reach, the government priced the IPOs at a significant discount to where it initially expected to price the deals.
“In Ircon, the pricing of the IPO is at around 15-20% lower to where the initial expectation was. The pricing was determined after several rounds of discussions with institutional investors. The department is certainly listening to their feedback and they have been actively engaging with investors on the road shows,” he said.
Ircon has set a price band of ₹470-475 per share for the public offering. The IPO opens on 17 September.
In the case of Garden Reach, the government has not just priced the share sale based on investor feedback, but has also changed the size of the offering, said a second person cited above, also requesting anonymity.
“Initially, when they filed the DRHP (draft red herring prospectus), the government was looking at divesting a 17.5% stake in Garden Reach through the IPO. However, investor feedback was that leaving behind a small stake (for meeting 25% public shareholding norm) leaves a overhang on the stock. By selling 25% in one go, there is no future selling pressure on the stock price,” he said.
Garden Reach has priced its shares in the range of ₹115-118, which will fetch the government ₹344.6 crore from selling its 25% stake.
“The thought process in the Department of Investment and Public Asset Management today is that they would not like to rely too much on Life Insurance Corporation to come and save government IPOs, as has been the case in the past. They would like to make the offerings attractive enough for the wider market,” the second person cited above added.
A spokesperson for the ministry of finance declined to comment.
To be sure, the new approach at DIPAM comes at a time when the government has set itself an aggressive divestment target of ₹80,000 crore from stake sale in various state-run companies.
So far, it has managed to sell stakes worth just ₹9,219.9 crore, according to data on the Department of Investment and Public Asset Management website and the two share sales of Ircon and Garden Reach, given their small sizes, will not move the needle by much.