Govt's move to pare stake in Axis Bank fuels hope of divestment by stealth

Experts said instead of an OFS, the government can use the open market route, wherever possible
The Centre’s move to pare its holding in Axis Bank--held under the Specified Undertaking of The Unit Trust of India’s (Suuti)--has stoked hopes of disinvestment by stealth. Last week, the government sold shares worth Rs 220 crore in Axis Bank in the open market. The transaction, carried out without a formal announcement, came to light only this week. Market players said the government should pursue the same strategy for selling shares in listed PSUs. A prior announcement often leads to bear hammering of the stock causing harm to the government as well as other shareholders, they add.

The government usually offloads stake in listed firms using the offer for sale  (OFS) route. Under this, the seller has to announce the details of the transaction at least a day in advance. Often the secondary market price tends to converge with the floor price set by the seller in case of a PSU. This impacts demand for the share sale.

Experts said instead of an OFS, the government can use the open market route, wherever possible.

"This is the fastest way to sell the stock, especially when there is enough liquidity in the market. The government might continue with this strategy with other Suuti holdings. OFS is a lengthy process, and then you have to build the book. Under an OFS you have to give reserve a portion of the share sale for retail investors. The flip side of this strategy is that you cannot sell in bulk. If you give a large order, the prices will start falling. If the government is patient enough to do it over a few months then this method has a better price discovery," said Pranjal Srivastava, independent equity markets professional.

The government sold over 3.6 million shares of Axis Bank on between November 26 and November 27. The supply was easily absorbed by the market without much turbulence in the stock price. In the preceding four weeks, shares of the lender had rallied over 20 per cent.

“OFS the way it is structured in India is not the best way of discovering price. Currently, the markets are buoyant If they keep selling daily they will end up selling a huge quantity by the end of the month,' said Prithvi Haldea, Founder, Prime Database.

The government through Suuti holds shares in several listed companies, which it plans to liquidate. The bulk of the value of Suuti holdings is just in two stocks--ITC and Axis Bank. at current market rate, the stake in these two companies is worth Rs 27,000 crore.

In a recent interaction with the government, the country’s leading fund managers had urged to government to handle the disinvestment process better. The said excess supply of paper was depressing stock prices of several PSUs. Following the feedback, the government has vowed not to use the exchange traded fund (ETF) route for meeting disinvestment targets.

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