Lukewarm response from investment banks for the Specified Undertaking of the Unit Trust of India (Suuti) mandate has forced the government to make further relaxations in the selection criteria.
The Centre on Tuesday floated a fresh request for proposal (RFP) inviting bankers to manage a potential Rs 60,000-crore share sale. The “conflict of interest” clause in the latest RFP has been diluted further after only four investment banks qualified under the conditions set earlier.
According to the revised RFP, Suuti will select a panel of six investment banks for three years based on merit. The conflict clause will not be applied while selecting these six bankers but will be only applicable at the time of actual share sale. These six bankers will be ranked based on certain criteria. Of the six banks, only three will be required for each transaction. The selection of the three bankers will be based on their ranks. However, if one of the three banks fails to meet the conflict clause, Suuti will select the from among the other three based on ranking.
“The appointed merchant bankers will be ranked as per applicable criteria for appointment. In the normal course the Suuti will utilise the services of the merchant bankers following their rankings. However in case a merchant banker is found to be in conflict at the time of selection for a transaction, then the Merchant Banker in the next order of ranking will be given the opportunity to execute the transaction. This methodology will be followed for each transaction separately,” the revised RFP stated.
To illustrate this, say A, B, C, D, E and F are banks ranked 1, 2, 3, 4, 5 and 6 respectively. At the time of selling stake in Axis Bank A, B and C will be selected. However, if B is involved in the share sale of another bank, it will be disqualified and instead D will be selected.
Bulk of the Suuti stake is in three companies Axis Bank, Larsen and Toubro (L&T) and ITC. Besides that it owns shares in smaller quantities in 48 other listed and unlisted companies.
A senior government source confirmed that the new RFP was issued as the previous one failed to generate interest among bankers to become part of Suuti stake sales.
Each appointed banker will have to inform Suuti about the conflict situation that may arise during the period of this mandate and also at the time of cessation of such conflict. For the avoidance of doubt, the obligation to notify Suuti shall only be applicable after the appointment of such merchant banker and shall not be considered in the process of appointment.
NORMS EASED FURTHER
The government has been forced to make further relaxations in the selection criteria after lukewarm response from investment banks to manage a potential Rs 60,000-crore share sale
The new request for proposal (RFP) says Suuti will pick a panel of six investment bankers for three years based on merit
The bankers will be ranked and three would be required for each transaction
Ideally, the top three would be picked but in case one among the three is disqualified due to any conflict of interest arising, the next banker would be picked
The pre-bid meeting with merchant bankers on the revised RFP will take place on August 27 and the merchant bankers will have to submit their bids by September 6