Private&Confidential

Disinvestmentby GovernmentCompanies
AProcess
KeynoteCorporateServicesLimited

September2011

DisinvestmentbyGovernmentCompanies:AProcess

Disclaimer
This document is for illustration purpose only. This is a compilation of information relating to disinvestmentprocessbyGovernmentofIndiaandvariousmethodologiesadapted/tobeadaptedfor the said purpose. This contains certain historical data obtained from authenticated sources available publically.KeynoteCorporateServicesLimited(Keynote)doesnotguaranteethecorrectnessforthesaid data.Thisisaimedatprovidinggeneralinformationaboutthedisinvestment,theprocess,thedataon disinvestmentsmadeinIndiabyPublicsectorUndertakings(PSUs)tilldate. Nothingcontainedhereinis,orshallberelieduponasapromiseorrepresentation.Anyreproductionof the contents of this presentation in whole or in part, or disclosure to the third parties of any of its contents,withoutpriorwrittenconsentofKeynoteisprohibited. 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 assumptionsonwhichtheyarebased,orachievingreturnsasperthetermssetouthere.

DisinvestmentbyGovernmentCompanies:AProcess

TableofContents
1 2 3 4 5 6 7 8 A

2.1 2.2 2.3 3.1 3.2 3.3 3.4 4A 5.1 5.2 5.3 5.4 5.5 5.6 5.7 6.1 6.2 6.3 6.4 6.5 6.6 7.1 7.2

Introduction DifferentApproachestoDisinvestments MinorityDisinvestment MajorityDisinvestment CompletePrivatization DisinvestmentsAhistoricalPerspective Periodfrom199192to200001 Periodfrom200102to200304 Periodfrom200405to200809 200910onwards TheProcessofDisinvestment ComparisonofProcessofmakingPublicOfferingbynonGovernmentand Governmentcompanies PreparingaPSUforDisinvestment EligibilityNorms AlternativeNorms Exemptionstocertaincategoryofentitiesfromtheeligibilitynorms FastTrackIssue MinimumPublicShareholding&RelaxationsgiventoPublicSector Companies CorporateGovernanceRequirements OtherKeySteps ExceptionsgiventoGovernmentCompaniesunderSEBIICDRRegulations Eligiblesharesforoffer(regulation26(6)) Facevalueofequityshares(31(1b)) Securitiesineligibleforminimumpromoterscontribution(33(1b)(iii)) Minimumoffertopublic(41(2)) FinancialinformationofGroupCompanies(disclosuresunderScheduleVIII PartA) Outstandinglitigationsinvolvingthepromoterandgroupcompanies (disclosuresunderScheduleVIIIPartA) Marketing&sellingstrategy MarketingStrategy SellingStrategy Conclusion Annexure1 DisinvestmentbyGovernmentCompaniestilldate

1 3 3 3 3 4 4 5 5 5 6 9 10 10 11 11 11 12 12 13 14 14 14 15 15 15 15 16 16 16 18 19

DisinvestmentbyGovernmentCompanies:AProcess 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 PSUs were permitted to be listed and traded on stock exchanges enabling retail and other investors to invest in these blue chip PSUs 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 510 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; 1

DisinvestmentbyGovernmentCompanies:AProcess 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 nonstrategic 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.

DisinvestmentbyGovernmentCompanies:AProcess 2. Different Approaches to Disinvestments There are primarily three different approaches to disinvestments (from the sellers i.e. Governments 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.

DisinvestmentbyGovernmentCompanies:AProcess 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.

DisinvestmentbyGovernmentCompanies:AProcess 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 200304 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.

DisinvestmentbyGovernmentCompanies:AProcess 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 AdvisersDomestic and International, Auditors and Advertising Agency/Public Relation Agency. There are separate individual eligibility requirements for each of the intermediary involved.

DisinvestmentbyGovernmentCompanies:AProcess 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. 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. Undertake due diligence activities and prepare the DRHP/RHP/Prospectus and complete all stipulated requirements & formalities of regulatory/statutory authorities. Undertake filing of the DRHP/RHP/Prospectus with SEBI/ Stock Exchanges/ ROC. 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. Ensure optimum return to the Government. 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. Undertake market research, assist in the pricing of the Issue, allocation of shares and provide after sale support, etc. Perform all other responsibilities connected with the Initial Public Offer. Underwrite the Initial Public Offer. Assist in selection of intermediaries to be appointed by Government and coordinate the work of all intermediaries. 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. Organize road shows both domestic and international.

(ii)

(iii)

(iv)

(v)

(vi) (vii)

(viii)

(ix) (x) (xi)

(xii)

(xiii)

DisinvestmentbyGovernmentCompanies:AProcess (xiv) Undertake the task of printing and distribution of stationery required for the Initial Public Offer. The appointed BRLMs will also make the following payments: i. ii. iii. Filing fee to SEBI; NSE/BSE charges for use of software for the book building; Payments required to be made to Depository or the Depository Participants for transfer of shares to the beneficiaries account.

(xv)

(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.

DisinvestmentbyGovernmentCompanies:AProcess

4AComparisonofProcessofmakingPublicOfferingbynonGovernmentand Governmentcompanies
Particulars Objective Non Government Company To raise resources to fund the objects such as project implementation working capital repayment of loan acquisitions etc Origination is Management specific and a one step process as it involves Promoters decision. Government Company The major objective is to raise resources for the government to fund Fiscal deficit.

Origination

Appointment of Intermediaries

Flexible and speedy process as decision making is swift on account of direct involvement of Promoters & management.

IPO Preparedness

IPO preparedness is easy to establish as focused approach is followed. No specific exemptions except in case of follow on offers by companies under a Fast Track Issue.

Offer Parameters

Offer Document

No specific exemptions.

Statutory Clearances / Approvals

Hurdles in the form of detailed scrutiny.

Marketing

Need a higher degree of marketing to garner participation.

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. Being Government, the process is less flexible and involves a tendering approach. The parameters of eligibility criterias have to be determined for selection of various intermediaries followed by a technical & financial evaluation process. It is a time consuming multi step process. It involves various levels of internal clearances and coordination amongst several government departments & specific committees. 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. Exemptions available with respect to disclosures of group companys information and litigation involving promoters and group companies. Swift clearances. It has been observed that statutory approvals/ clearances required for launching an IPO are within the stipulated time prescribed in regulations. 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.

DisinvestmentbyGovernmentCompanies:AProcess 5. Preparing a PSU for Disinvestment As far as process of making public offer by companies under Public Sector (PSUs) and no Public Sector (non PSUs) 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: PSUs 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 PSUs engaged in infrastructure sector. The face value of shares of PSUs 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) b) c) d) e) Net tangible assets of at least Rs. 3 crore in each of the preceding three full years Distributable profits for at least three out of the immediately preceding five years Net worth of at least Rs. 1 crore in each of the preceding three full years The issue size should not exceed 5 times the pre-issue net worth If there has been a change in the companys 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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DisinvestmentbyGovernmentCompanies:AProcess 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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DisinvestmentbyGovernmentCompanies:AProcess 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 12

DisinvestmentbyGovernmentCompanies:AProcess 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 its 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 13

DisinvestmentbyGovernmentCompanies:AProcess 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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DisinvestmentbyGovernmentCompanies:AProcess 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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DisinvestmentbyGovernmentCompanies:AProcess 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 countrys 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

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DisinvestmentbyGovernmentCompanies:AProcess 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. QIBs Set the tone for the IPO Anchor investors who provide initial impetus to the Book and predict success of the issue QIBs 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.

17

DisinvestmentbyGovernmentCompanies:AProcess 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. 18

DisinvestmentbyGovernmentCompanies:AProcess

Annexure

19

DISINVESTMENTBYGOVERNMENTCOMPANIESTILLDATE
SL.NO. COMPANY (NAMEASATTHETIMEOF ISSUE) IPO/ FPO OPENING DIVESTMENT DIVESTMENT DIVESTMENT (Rs.crore) AS%OFPOST ISSUECAPITAL FRESHCAPITAL (Rs.crore) FRESHCAPITAL AS%OFPOST ISSUECAPITAL ISSUEAMOUNT (Rs.crore) %GOVT. HOLDING PRIORTO ISSUE %GOVT. HOLDING AFTERISSUE VALUEOF GOVT.HOLDING ASONISSUE DATE(Rs.crore)

DATE/FINANCIALYEAR BY

CPSEsatthetimeofIssue(CPSEsdefinedascompanieswherethedirectholdingoftheCentralGovernmentorofotherCPSEsis51%ormore) 1 BHARATEARTHMOVERSLTD. 2 CMCLTD. 3 COALINDIALTD. FPO FPO IPO 27/06/2007 23/02/2004 18/10/2010 GOI GOI 190.44 15199.44 26.25 10 526.75 11.77 526.75 190.44 15199.44 61.23 26.25 99.99 54.03 0 89.99 2418.75 0 139275.82

4 DREDGINGCORP.OFINDIALTD. 5 ENGINEERSINDIALTD. 6 GAIL(INDIA)LTD. HINDUSTANORGANIC 7 CHEMICALSLTD. 8 IBPCO.LTD. INDIANPETROCHEMICALS 9 CORP.LTD. INDIANPETROCHEMICALS 10 CORP.LTD. 11 MADRASFERTILIZERSLTD. 12 MADRASREFINERIESLTD. 13 MARUTIUDYOGLTD.

FPO FPO FPO

26/02/2004 27/07/2010 27/02/2004

GOI GOI GOI

221.2 959.65 1627.36

20 10 10

221.2 959.65 1627.36

98.56 90.4 67.34

78.56 80.4 57.34

879.91 7856.12 9456.27

FPO FPO

10/11/1994 23/02/2004 GOI 350.66 26

57.25

17

57.25 350.66

80 26

58.62 0

197.41 0

FPO

16/11/1992

320

9.66

320

80

71.87

2380.8

FPO IPO FPO IPO

20/02/2004 12/05/1997 23/03/1994 12/06/2003

GOI

1202.85

28.95 42.94 118.47 17.25 10.3

1202.85 42.94 118.47 993.34

33.95 69.78 67.7 45.79

5 57.74 51.81 18.28

210.99 143.78 618.13 660.3

GOI

993.34

27.51

14 MOILLTD.

IPO

26/11/2010

GOI,GOVT.OF MAH., GOVT.OFM.P.

1237.51

20

1237.51

100

80

5040

Page1

DISINVESTMENTBYGOVERNMENTCOMPANIESTILLDATE
SL.NO. COMPANY (NAMEASATTHETIMEOF ISSUE) IPO/ FPO OPENING DIVESTMENT DIVESTMENT DIVESTMENT (Rs.crore) AS%OFPOST ISSUECAPITAL FRESHCAPITAL (Rs.crore) FRESHCAPITAL AS%OFPOST ISSUECAPITAL ISSUEAMOUNT (Rs.crore) %GOVT. HOLDING PRIORTO ISSUE %GOVT. HOLDING AFTERISSUE VALUEOF GOVT.HOLDING ASONISSUE DATE(Rs.crore)

DATE/FINANCIALYEAR BY

NATIONALTHERMALPOWER 15 CORP.LTD. 16 NHPCLTD. 17 NMDCLTD. 18 NTPCLTD.

IPO IPO FPO FPO

07/10/2004 07/08/2009 10/03/2010 03/02/2010

GOI GOI GOI GOI

2684.07 2012.85 9930.45 8480.1

5.25 4.55 8.38 5

2684.07 4025.7

5.25 9.09

5368.15 6038.55 9930.45 8480.1

100 100 98.38 89.5

89.5 86.36 90 84.5

45753.73 38244.13 107052.55 140740.7

19 OIL&NATURALGASCORP.LTD. 20 OILINDIALTD. 21 POWERFINANCECORP.LTD. 22 POWER FINANCE CORP LTD POWERFINANCECORP.LTD. POWERGRIDCORP.OFINDIA 23 LTD. POWERGRIDCORP.OFINDIA 24 LTD.

FPO IPO IPO FPO FPO

05/03/2004 07/09/2009 31/01/2007 10/05/2011 10/05/2011

GOI

10542.4

9.96 2777.25 997.19 11 10.22 13.04 13 04

10542.4 2777.25 997.19 4578.2 4578 2

84.11 88.13 100 89.78 89 78

74.11 78.43 89.78 73.72 73 72

79303.03 19802.95 8758.83 19753.15 19753 15

GOI

1144.55 1144 55

4.35 4 35

3433.65 3433 65

IPO

10/09/2007

GOI

994.82

4.55

1989.63

9.09

2984.45

100

86.36

18901.52

FPO

09/11/2010

GOI

3721.17

9.09

3721.17

9.09

7442.34

86.36

69.42

28926.22

POWERTRADINGCORP.OFINDIA 25 LTD. IPO RURALELECTRIFICATION 26 CORP.LTD. RURALELECTRIFICATION 27 CORP.LTD. SHIPPINGCORP.OFINDIA 28 LTD.,THE 29 SJVNLTD. TAMILNADU 30 TELECOMMUNICATIONSLTD.

01/03/2004

93.6

39

93.6

IPO

19/02/2008

GOI

819.63

9.09

819.63

9.09

1639.26

100

81.82

7376.67

FPO

19/02/2010

GOI

882.51

4.35

2647.53

13.04

3530.04

81.82

66.8

13587.9

FPO IPO

30/11/2010 29/04/2010

GOI GOI

582.45 1062.74

9.09 10.03

582.45

9.09

1164.9 1062.74

80.12 100

63.75 89.97

4157.16 9676.23

IPO

09/05/1991

46.6

31 VIDESHSANCHARNIGAMLTD. SUBTOTAL

FPO

20/09/1999

GOI

75 64915.2

1.05 24842.29

75 89757.49

54.02

52.97

3774.04

Page2

DISINVESTMENTBYGOVERNMENTCOMPANIESTILLDATE
SL.NO. COMPANY (NAMEASATTHETIMEOF ISSUE) IPO/ FPO OPENING DIVESTMENT DIVESTMENT DIVESTMENT (Rs.crore) AS%OFPOST ISSUECAPITAL FRESHCAPITAL (Rs.crore) FRESHCAPITAL AS%OFPOST ISSUECAPITAL ISSUEAMOUNT (Rs.crore) %GOVT. HOLDING PRIORTO ISSUE %GOVT. HOLDING AFTERISSUE VALUEOF GOVT.HOLDING ASONISSUE DATE(Rs.crore)

DATE/FINANCIALYEAR BY

GDRs/Spillovers 1 GAIL(INDIA)LTD. MAHANAGARTELEPHONE 2 NIGAMLTD. GDR 199900 GOI 945 15.98 945 83.32 67.34

GDR

199798

GOI

910

7.13

910

63.35

56.22

3 OIL&NATURALGASCORP.LTD.

Spillove200405

GOI

15.99

15.99 NA

NA

4 VIDESHSANCHARNIGAMLTD.

GDR

199697

GOI

379.67

2.94

379.67 NA

NA

5 VIDESHSANCHARNIGAMLTD. SUBTOTAL SUB TOTAL TOTAL

GDR

199899

GOI

783.68 3034.34 3034 34 67949.54

7.54

783.68 NA 3034.34 3034 34 92791.83

NA

PSBsatthetimeofIssue(PSBsdefinedasBankswherethedirectholdingoftheCentral/StateGovernmentorotherPSBsis51%ormore) 1 ALLAHABADBANK 2 ALLAHABADBANK 3 ANDHRABANK 4 ANDHRABANK 5 BANKOFBARODA 6 BANKOFBARODA 7 BANKOFINDIA 8 BANKOFMAHARASHTRA 9 CANARABANK 10 CENTRALBANKOFINDIA 11 CORPORATIONBANK 12 DENABANK IPO FPO IPO FPO IPO FPO IPO IPO IPO IPO IPO IPO 23/10/2002 06/04/2005 14/02/2001 16/01/2006 05/12/1996 16/01/2006 21/02/1997 25/02/2004 18/11/2002 24/07/2007 03/10/1997 28/10/1996 100 820 150 765 850 1633 675 230 385 816 304 180 28.84 22.39 33.33 17.53 33.78 19.49 23.47 23.23 26.83 19.8 31.67 29.01 100 820 150 765 850 1633 675 230 385 816 304 180 100 71.16 100 62.5 100 66.83 100 100 100 100 100 100 71.16 55.23 66.67 51.55 66.22 53.81 76.52 76.77 73.17 80.2 68.33 70.98 246.7 2022.94 300 2250 1666 4508 2200.5 760.2 1050 3306.24 656 440.46

Page3

DISINVESTMENTBYGOVERNMENTCOMPANIESTILLDATE
SL.NO. COMPANY (NAMEASATTHETIMEOF ISSUE) IPO/ FPO OPENING DIVESTMENT DIVESTMENT DIVESTMENT (Rs.crore) AS%OFPOST ISSUECAPITAL FRESHCAPITAL (Rs.crore) FRESHCAPITAL AS%OFPOST ISSUECAPITAL ISSUEAMOUNT (Rs.crore) %GOVT. HOLDING PRIORTO ISSUE 216 22.54 72 2.4 70.99 %GOVT. HOLDING AFTERISSUE VALUEOF GOVT.HOLDING ASONISSUE DATE(Rs.crore) 396.41

DATE/FINANCIALYEAR BY

13 DENABANK 14 GICHOUSINGFINANCELTD. 15 IDBIBANKLTD. 16 INDBANKHOUSINGLTD.

FPO IPO IPO IPO

24/01/2005 19/12/1994 09/02/1999 07/10/1991

216 22.54 72 2.4

27.89 25.05 28.57 24

51.19

INDBANKMERCHANTBANKING 17 SERVICESLTD. IPO 18 INDIANBANK 19 INDIANOVERSEASBANK 20 INDIANOVERSEASBANK JAMMU&KASHMIRBANK 21 LTD.,THE 22 LICHOUSINGFINANCELTD. IPO IPO FPO

18/03/1994 05/02/2007 25/09/2000 05/09/2003

36.02 782.14 111.2 240

49 20 25 18.36

36.02 782.14 111.2 240 100 100 75 80 75 61.23 3128.76 333.6 800.64

IPO IPO

13/05/1998 15/09/1994

70.3 113.51

38.14 25.22

70.3 113.51

85.91

53.15

97.95

23 ORIENTALBANKOFCOMMERCE IPO

05/10/1994

360

31.52

360

100

67.23

768

24 ORIENTALBANKOFCOMMERCE FPO 25 PUNJAB&SINDBANK 26 PUNJABNATIONALBANK 27 PUNJABNATIONALBANK 28 SBIHOMEFINANCELTD. STATEBANKOFBIKANER& 29 JAIPUR IPO IPO FPO IPO

25/04/2005 13/12/2010 21/03/2002 07/03/2005 15/02/1993

1450 470.82 164.49 3120 4.6

23.15 17.93 20 23.17 30.65

1450 470.82 164.49 3120 4.6

66.48 100 100 80

51.09 82.07 80 61.47

3200 2196.67 657.95 8277.41

FPO

20/11/1997

65.94

24.42

65.94

99.21

75

202.5

Page4

DISINVESTMENTBYGOVERNMENTCOMPANIESTILLDATE
SL.NO. COMPANY (NAMEASATTHETIMEOF ISSUE) IPO/ FPO OPENING DIVESTMENT DIVESTMENT DIVESTMENT (Rs.crore) AS%OFPOST ISSUECAPITAL FRESHCAPITAL (Rs.crore) FRESHCAPITAL AS%OFPOST ISSUECAPITAL ISSUEAMOUNT (Rs.crore) %GOVT. HOLDING PRIORTO ISSUE 69.24 125 250 240 288 495 325.15 100 240 16342.36 1.5 100 73.52 100 100 60.85 100 100 70.02 70 02 %GOVT. HOLDING AFTERISSUE VALUEOF GOVT.HOLDING ASONISSUE DATE(Rs.crore) 3.15 346.97 1734.84 719.23 448 3080 1758.44 259.24 560.44 560 44

DATE/FINANCIALYEAR BY

30 STATEBANKOFTRAVANCORE 31 SYNDICATEBANK 32 SYNDICATEBANK 33 UCOBANK 34 UNIONBANKOFINDIA 35 UNIONBANKOFINDIA 36 UNITEDBANKOFINDIA 37 VIJAYABANK 38 VIJAYA BANK VIJAYABANK SUBTOTAL

FPO IPO FPO IPO IPO FPO IPO IPO FPO FPO

08/12/1997 25/10/1999 07/07/2005 03/09/2003 20/08/2002 15/02/2006 23/02/2010 27/11/2000 09/10/2003 09/10/2003 0

69.24 125 250 240 288 495 325.15 100 240 16342.36

23.08 26.48 9.58 25.02 39.13 8.91 15.8 27.84 23.07 23 07

1.05 73.52 66.47 74.98 60.87 55.43 84.2 72.16 53.87 53 87

PSFIsatthetimeofIssue(PSFIsdefinedasFinancialInstitutionswherethedirectholdingoftheCentralGovernmentorotherPSFIsis51%ormore) INDUSTRIALCREDIT& INVESTMENTCORP.OFINDIA 1 LTD. INDUSTRIALDEVELOPMENT 2 BANKOFINDIA INDUSTRIALFINANCECORP.OF 3 INDIALTD.,THE

FPO

13/02/1991

82

28.96

82

FPO

05/07/1995

GOI

187.46

2.16

1747.2

20.12

1934.66

100

72.69

6312.54

IPO

07/12/1993

525

42.42

525

SHIPPINGCREDIT&INVESTMENT 4 CO.OFINDIALTD. IPO TOURISMFINANCECORP.OF 5 INDIALTD. SUBTOTAL

04/02/1991

25

33.33

25

IPO

26/09/1994 187.46

51 2430.2

25.36

51 2617.66

Page5

DISINVESTMENTBYGOVERNMENTCOMPANIESTILLDATE
SL.NO. COMPANY (NAMEASATTHETIMEOF ISSUE) IPO/ FPO OPENING DIVESTMENT DIVESTMENT DIVESTMENT (Rs.crore) AS%OFPOST ISSUECAPITAL FRESHCAPITAL (Rs.crore) FRESHCAPITAL AS%OFPOST ISSUECAPITAL ISSUEAMOUNT (Rs.crore) %GOVT. HOLDING PRIORTO ISSUE %GOVT. HOLDING AFTERISSUE VALUEOF GOVT.HOLDING ASONISSUE DATE(Rs.crore)

DATE/FINANCIALYEAR BY

SLPEsatthetimeofIssue(SLPEsdefinedascompanieswherethedirectholdingoftheStateGovernmentorotherSLPEsis51%ormore) GUJARATINDUSTRIESPOWER 1 CO.LTD. GUJARATMINERAL 2 DEVELOPMENTCORP.LTD. GUJARATSTATEFINANCIAL 3 CORP.

FPO

13/10/2005 STATEGOVT. OFGUJARAT

200

19.45

200

IPO

14/10/1997

107.48

26

87.72

100

74

305.92

IPO

11/02/1997

47

24.71

47

68.56

51.62

98.18

4 GUJARATSTATEPETRONETLTD. IPO

24/01/2006

372.6

25.45

372.6

5 HARYANA FINANCIAL CORP LTD IPO HARYANAFINANCIALCORP.LTD. IPO OPTELTELECOMMUNICATIONS 6 LTD. IPO

18/05/1995 18/05/1995

20.26 20 26

24.94 24 94

20.26 20 26

73.11 73 11

54.88 54 88

44.58 44 58

30/06/1995

43.75

25

43.75

7 PUNJABCOMMUNICATIONSLTD. IPO

24/10/1994

105.27

26.17

105.27

8 PUNJABWIRELESSSYSTEMSLTD. IPO TAMILNADUNEWSPRINT& 9 PAPERSLTD. SUBTOTAL

27/10/1993

15.02

58.23

15.02

IPO

27/11/1995 107.48

220 1023.9

28.57

220 1111.61

48.89

34.92

268.89

OtherCompanieswhereCentraland/orStateGovernmentsand/orGovernmentCompaniesand/orGovernmentFinancialInstitutionshadthesinglelargestshareholdingatthetimeofissue 1 ICICILTD. FPO 09/09/1999 275.21 6.83 275.21

INFRASTRUCTURE 2 DEVELOPMENTFINANCECO.LTD. IPO 3 PETRONETLNGLTD. SUBTOTAL GRANDTOTAL IPO

15/07/2005 01/03/2004

GOI

301.24

7.89

408 391.47

10.69 34.8

1372.24 391.47 2038.92 114902.39

34.91

23.29

888.76

301.24 68545.72

1074.68 45713.43

Page6

DisinvestmentbyGovernmentCompanies:AProcess

NOTES

DisinvestmentbyGovernmentCompanies:AProcess

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