DISINVESTMENT OF PUBLIC SECTOR UNDERTAKING

ARINDOM MUKHERJEE

METHODOLOGIES ADOPTED BY GOI SO FAR FOR CPSU DISINVESTMENT

STRATEGIC SALE OFFER FOR SALE TO PUBLIC AT FIXED PRICE OFFER FOR SALE TO PUBLIC THROUGH BOOK BUILDING INTERNATIONAL OFFERING [GLOBAL DEPOSITORY RECEIPTS (GDR) /AMERICAN DEPOSITORY RECEIPTS (ADR)] PRIVATE PLACEMENT OF EQUITY AUCTION ASSET SALE / WINDING UP MANAGEMENT / EMPLOYEE BUY OUT (M/EBO)

STRATEGIC SALE
PRECEDENTS: MFIL, BALCO, CMC, HTL, VSNL, IBP, HZL, PPL, IPCL, BELTING DIVISION OF ANDREW YULE & CO. LTD ETC.
ADVANTAGES

1)

MAXIMISES PRICE BECAUSE OF TRANSFER OF MANAGEMENT RIGHTS 2) BRINGS TECHNICAL / MARKETING / FINANCIAL / MANAGERIAL EXPERTISE OF THE BUYER TO THE COMPANY 3) INCREASED VALUE OF RESIDUAL GOVT. SHAREHOLDING 4) LOW COST AND LESS REGULATION DISADVANTAGES 1) TIME CONSUMING 2) ISSUES RELATING TO MANAGEMENT, LAND AND LABOUR ETC. TO BE RESOLVED 3) PROSPECTIVE BIDDERS AT TIMES LOSES INTEREST BECAUSE OF LONG WINDING PROCEDURE

STEPS INVOLVED IN STRATEGIC DISINVESTMENT OF INDIAN CPSU

STEPS INVOLVED IN STRATEGIC DISINVESTMENT OF INDIAN CPSU

PRESENTATIONS BY ADVIOSRS SELECTION OF ADVISOR APPOINTMENT OF ADVISOR APPOINTMENT OF LEGAL ADVISOR/FIXED ASSET VALUERS/OTHER ADVISERS RECOMMENDATION OF DISIVESTMENT PROPOSAL BY ADVISOR & APPROVAL OF THE SAME BY CCD

DETAILED PROCEDURE OF STRATEGIC SALE OF A CPSU

STAGE I : INVITING EXPRESSION OF INTEREST AND QUALIFICATION OF BIDDERS STAGE II : REQUEST FOR PROPOSAL (RFP) & SUBMISSION OF BIDS STAGE III : COMPLETION

INVITING EXPRESSION OF INTEREST AND QUALIFICATION OF BIDDERS

ISSUE OF ADVERTISEMENT INVITING EXPRESSION OF INTEREST (EOI) SUBMISSION OF PRELIMINARY INFORMATION MEMORANDUM (PIM) & SUPPORTING DOCUMENTS TO INTERESTED PARTIES. SUBMISSION OF EXPRESSION OF INTEREST BY INTERESTED BIDDERS

PRELIMINARY INFORMATION MEMORANDUM (PIM)

INCLUDES A DOCUMENT GIVING(A) INTRODUCTION (B) INFORMATION ABOUT THE COMPANY & (C) FINANCIAL DETAILS OF THE COMPANY THE PRELIMINARY INFORMATION MEMORANDUM ALSO CONTAINS THE CONDITIONS FOR (A) QUALIFICATION OF BIDDERS AND (B) FOLLOWING FORMATS FOR SUBMISSION BY BIDDERS (1) EXPRESSION OF INTEREST (2) STATEMENT OF LEGAL CAPACITY AND (3) REQUEST FOR QUALIFICATION (RFQ).

DETAILS OF BIDDER SOUGHT FOR IN EXPRESSION OF INTEREST(EOI)

BIDDER DETAILS: EXECUTIVE SUMMARY, MANAGEMENT ORGANIZATION , DETAILS OF INTERNATIONAL OPERATIONS / JOINT VENTURES / ALLIANCES , PROFESSIONAL ADVISORS ENGAGED, LEGAL CAPACITY OF THE COMPANY & OUTSTANDING LITIGATION BASED ON THE INFORMATION SUBMITTED IN EOIS & LAID DOWN GUIDELINES , THE MINISTRY AND THE ADVISORS WILL CARRY OUT DETAILED EVALUATION AND SUBSEQUENTLY NOTIFY IN WRITING THOSE COMPANIES / CONSORTIA WHICH QUALIFY TO PARTICIPATE IN THE NEXT STAGE OF THE PROCESS

NOTIFICATION TO QUALIFIED / SHORT LISTED PARTIES & ISSUE OF BID PACKS

BID PACKS CONTAINS :1) CONFIDENTIAL INFORMATION MEMORANDUM (CIM) 2) PREVIOUS 3 YEARS' AUDITED ANNUAL ACCOUNTS OF THE COMPANY 3) DATA ROOM RULES 4) DRAFT SHARE PURCHASE AGREEMENT 5) DRAFT SHAREHOLDERS' AGREEMENT, AND 6) PROVISIONAL RESULTS FOR THE CURRENT FINANCIAL YEAR CONFIDENTIALITY UNDERTAKING: THE CONFIDENTIALITY UNDERTAKING CONTAINS AN INDEMNITY CLAUSE, WHEREBY THE BIDDER AGREES TO INDEMNIFY THE ADVISOR, THE GOVT. AND THE COMPANY ANY DAMAGES, LOSS, COST OR LIABILITY ARISING OUT OF ANY UNAUTHORISED USE OR DISCLOSURE BY THE BIDDER

FORM AND CONTENT OF THE FINANCIAL BID

FINANCIAL BID STRICTLY AS PER FORMAT EXPRESSED IN INDIAN RUPEES; MADE ON THE BASIS OF THE TERMS OF THE REVISED FINAL DRAFTS OF THE CONTRACTUAL DOCUMENTATION AS MAY BE CIRCULATED TO THE BIDDER UNCONDITIONAL AND OPEN FOR ACCEPTANCE FOR A SPECIFIED PERIOD FROM THE STIPULATED DEADLINE; MUST BE SIGNED BY THE BIDDER OR, WHERE THE BIDDER IS A CONSORTIUM BY ALL THE MEMBERS OF THE CONSORTIUM, AND SUBMITTED ON OR PRIOR TO THE STIPULATED DEADLINE.

BIDDING PROCEDURE TO BE FOLLOWED FOR STRATEGIC SALE

1. RESERVE PRICE SHOULD NOT BE FIXED BEFORE THE BIDDERS SUBMIT THEIR FINANCIAL BIDS 2. THE ADVISORS DO NOT FINALIZE THE RESERVE PRICE TO ENSURE AVOIDANCE OF CONFLICT OF INTEREST 3. VALUATION IS CARRIED OUT BY TWO INDEPENDENT, REPUTED VALUER & REPORT SUBMITTED TO GOVT. DIRECTLY 4. THE GOVERNMENT, WHILE FIXING THE RESERVE PRICE, SHOULD HAVE NO KNOWLEDGE OF THE PRICE BIDS SUBMITTED SO THAT THE FIXING OF THE RESERVE PRICE IS NOT INFLUENCED BY SUCH KNOWLEDGE. 5. THE BIDDERS ARE PROVIDED FULL COMFORT THAT THEIR BIDS, ONCE SUBMITTED, CAN IN NO WAY BE TAMPERED WITH BY ANY AGENCY.

FINAL SEQUENCE OF ACTIVITY

ACTIVITY-I: RECEIVING VALUATION REPORTS, FINALIZING THE RESERVE PRICE & THEN OPENING THE PRICE BIDS INFRONT OF THE BIDDERS & THEREAFTER FINALIZING THE PROCEEDINGS OF THE EVALUATION COMMITTEE ACTIVITY-II: MEETING OF THE CORE GROUP OF SECRETARIES ON DISINVESTMENT (CGD) TO CONSIDER RESERVE PRICE , BIDS & PROCEEDING OF THE EVALUATION COMMITTEE ACTIVITY-III:CONSIDERATION AND RELEVENT ORDER BY THE CABINET COMMITTEE ON DISINVESTMENT OR THE CABINET.

OFFER FOR SALE TO PUBLIC GOVT. OWNED SHARES AT FIXED PRICE(1 MILLION SHARES OF VSNL @ RS.750 PER SHARE.)
SALE OF EQUITY SHARES HELD BY THE GOVT. TO THE PUBLIC AT A PRE-DETERMINED PRICE THROUGH AN OFFER DOC. PREPARED BY MERCHANT BANKER/LEAD MANAGER REGULATORY COMPLIANCES OF SEBI AND STOCK EXCHANGES ADVANTAGES ENSURES BROAD-BASED SHAREHOLDING RELATIVELY QUICK METHOD MARKET BASED TRANSPARENT METHOD DISADVANTAGES SALE IS DEPENDENT ON MARKET CONDITIONS PRICE USUALLY AT A DISCOUNT TO MARKET COSTS APPROX. 2 5 % OF AMOUNT RAISED

OFFER FOR SALE TO PUBLIC THROUGH BOOK BUILDING(PRECEDENCE COAL INDIA,SAIL,SJVN,EIL)

PRICE IS DISCOVERED THROUGH A BIDDING PROCESS & OFFER MADE THROUGH AN OFFER DOCUMENT SUITABLE FOR COMPANIES FOR WHICH INSTITUTIONAL INTEREST IS EXPECTED TO BE SUBSTANTIAL REGULATORY COMPLIANCES SEBI REGULATIONS & STOCK EXCHANGE ADVANTAGES OPTIMISES PRICE ENSURES BROAD BASED SHAREHOLDING SETS BENCHMARKS FOR FURTHER OFFER FOR SALE /IPOS RELATIVELY QUICK & TRANSPARENT METHOD DISADVANTAGES PRICE DEPENDENT ON MARKET CONDITIONS EXPENSIVE WITH COST OF 2 - 5%

INTERNATIONAL OFFERING :GDR / ADR(PRECEDENTS: VSNL, MTNL, GAIL)

TARGET INVESTOR SET : FII & RETAIL INVESTORS MEET (1)DISCLOSURE REQUIREMENTS OF SEC &(2) NASDAQ / NYSE/ LSE LISTING REQUIREMENTS RECASTING ACCOUNTS PER US GAAP FOR ADRS AND CONSOLIDATION OF ACCOUNTS FOR GDR PREPARATION OF RED HERRING (OFFER DOCUMENT) AND ROAD SHOWS PRICE DISCOVERY THROUGH BIDDING AND ALLOCATIONS MADE AT CUT-OFF PRICE (DUTCH AUCTION) OR AT BID PRICE (FRENCH AUCTION) THE ISSUE IS USUALLY FULLY UNDERWRITTEN

INTERNATIONAL OFFERING :GDR / ADR(PRECEDENTS: VSNL, MTNL, GAIL)

ADVANTAGES: ACCESS TO DEEPER INTERNATIONAL MARKETS ACCESS TO FOREIGN CAPITAL ENHANCES INTERNATIONAL VISIBILITY FOR THE CONCERNED COMPANY OPENS UP FUTURE OPPORTUNITIES TO ACCESS INTERNATIONAL CAPILTAL DISADVANTAGES: TIME CONSUMING PROCESS HIGH COST ABOUT 4-5% FOR ADRS HIGH COST ABOUT 3% FOR GDRS

PRIVATE PLACEMENT OF EQUITY

(PRECEDENTS: CONCOR, GAIL )

INFORMATION MEMORANDUM CIRCULATED AMONG INSTITUTIONAL INVESTORS , MULTILATERAL AGENCIES, PRIVATE EQUITY FUNDS FOLLOWED BY DUE-DILIGENCE PRICE DISCOVERED THROUGH BOOK BUILDING OR APRIORY EVALUATED ADVANTAGES LEAST TIME CONSUMING AROUND ONE MONTH NO REGULATORY COMPLIANCE REQUIREMENTS(EXCEPT FII) AS PER SEBI GUIDELINES, PRIVATE PLACEMENT OF LESS THAN 15% EQUITY TO INVESTORS DOES NOT TRIGGER TAKE-OVER CODE LOW TRANSACTION COST DISADVANTAGES : DOES NOT ENSURE WIDESPREAD SHAREHOLDING MAY NOT BE CONSIDERED TRANSPARENT

AUCTION(INITIAL ROUNDS OF DISINVESTMENT IN CPSUS.)

1. DUTCH / FRENCH AUCTION BIDDING BY A SET OF INSTITUTIONAL INVESTORS FOR SALE OF PRE SPECIFIED NUMBER OF EQUITY SHARES HELD BY GOVT. 2. FOR LISTED COMPANIES, PLACEMENT OF LESS THAN 15% EQUITY TO EACH INVESTOR TO AVOID TRIGGER OF TAKE-OVER CODE OR AS PER THEN EXISTING SEBI GUIDELINES ADVANTAGES OPTIMISES RECEIPTS TO GOVERNMENT TRANSPARENT MECHANISM LESS TIME CONSUMING WITH NO REGULATORY COMPLIANCE LOW TRANSACTION COST DISADVANTAGES DOES NOT ENSURE BROAD BASED SHAREHOLDING

ASSET SALE / WINDING UP (PRECEDENT : MAMC)

THIS IS NORMALLY RESORTED TO IN COMPANIES THAT ARE EITHER SICK OR FACING CLOSURE. THE ASSET SALE IS NORMALLY DONE EITHER BY OPEN AUCTION OR BY TENDER METHOD. SICK COMPANIES UNDER SICA ARE WOUND UP ON THE DECISION OF BIFR. ORDERS OF THE CONCERNED HIGH COURT ARE THEN HANDED OVER TO THE OFFICIAL LIQUIDATOR FOR REALISATION OF DUES THROUGH LIQUIDATION.

SALE THROUGH DEMERGER / SPINNING OFF(FEW HOTELS OF ITDC AND HCI )

1) SECTIONS 391-394 OF THE COMPANIES ACT 1956 GOVERN DEMERGER. THE BASIC CONCEPT OF DEMERGER REQUIRES TRANSFER OF AN UNDERTAKING FROM AN EXISTING COMPANY ("TRANSFEROR COMPANY") TO ANOTHER EXISTING COMPANY (TRANSFEREE COMPANY"). 2) TO MINIMIZE TIME, NEW TRANSFEREE COMPANIES CAN BE INCORPORATED AS SHELL COMPANIES IN WHICH THE PROPERTIES OF TRANSFEROR COMPANY CAN BE HIVED OFF I.E. DEMERGED. 3) SUCH NEW COMPANIES REMAIN AS "SHELL COMPANIES UNTIL THE PROPERTIES ARE TRANSFERRED TO THEM AS PER THE ORDER OF DCA. 4) THESE NEW COMPANIES CONTINUE AS GOVERNMENT COMPANIES UNDER SECTION 617 OF THE COMPANIES ACT AND ARE FORMED FOR THE LIMITED PURPOSE OF FACILITATING THE DEMERGER ON TRANSFER OF SHARES TO SUCCESSFUL BIDDERS, WHEREUPON THEY CEASE TO BE GOVERNMENT COMPANIES.

DISINVESMENT OF PSU : INDIAN SCENARIO

2010-11

40000

LIKELY TO EXCEED

EXTRA SLIDE

STEPS INVOLVED IN STRATEGIC DISINVESTMENT OF INDIAN CPSU

RECEIVING EXPRESSION OF INTEREST FROM BIDDERS SHORT-LISTING OF BIDDERS ON THE BASIS OF PRESCRIBED / ANNOUNCED QUALIFICATION CRITERIA & SIGNING OF CONFIDENTIALITY UNDERTAKING FINALISATION & DISTRIBUTION OF PRELIMINARY INFORMATION MEMORANDUM ETC. DATA ROOM VISITS/DUE DILIGENCE, ETC., BY SHORTLISTED BIDDERS FINALIZATION OF SHAREHOLDERS'/ SHARE PURCHASE / OTHER AGREEMENTS ETC. IN CONSULTATION WITH THE BIDDERS

STEPS INVOLVED IN STRATEGIC DISINVESTMENT OF INDIAN CPSU

RECEIPT OF FINAL BIDS AND RESEALING OF BIDS IN PRESENCE OF BIDDERS & RECEIPT OF EVALUATION PAPERS FROM ADVISORS FINALIZATION OF UPSET PRICE BY EVALUATION COMMITTEE/CGD REOPENING OF FINANCIAL BIDS IN PRESENCE OF BIDDERS AND THEIR COMPARISON WITH UPSET PRICE BY CGD CGD/CCD APPROVALS (AND OTHER REGULATORY APPROVALS, AS NEEDED) EXECUTION OF LEGAL DOCUMENTS AND INFLOW OF FUNDS