Only four investment banks are in the final shortlist to manage the estimated Rs 60,000-crore worth of share sales in companies owned by the Specified Undertaking of the Unit Trust of India (Suuti).
The central government rejected at least half a dozen applications from banks that placed “conditional bids”, said three people with knowledge of the development, including a government official.
“Most foreign banks and at least two domestic banks bid with caveats. All have been rejected,” said a source.
The final shortlist of four doesn't feature any foreign banks, uncommon for a share sale of this size.
ICICI Securities, SBI Capital Markets, Edelweiss Securities and IDFC Bank are the four shortlisted. The government intends to divest stake in 51 listed and unlisted companies, says Suuti’s website.
The government’s formal Request for Proposal (RFP) said the idea was to appoint up to three investment banks for “attending, assisting and advising on sale of Suuti shareholding in different companies”, for three years.
The four shortlisted banks made a final presentation on the share sale to the government on Friday. The government might choose two or three banks from the final shortlist.
Some prominent investment banks were rejected — Citibank, Kotak Mahindra Bank, HSBC, Deutsche Bank and JM Financial.
Sources said several banks had sought a relaxation on the ‘conflict of interest’ clause in the RFP.
Banks, said the invite, would not be able to take the mandate of companies with the same nature of business as ITC, Axis Bank and Larsen & Toubro-the three companies that are the bulk of Suuti’s assets.
“The three-year Suuti mandate prevents a bank from taking up more in the engineering, consumer and banking sectors. Some banks applied with the condition that they be allowed to work on other companies in these sectors,” said a source.
In the initial RFP, the conflict clause was applicable to the entire Suuti basket of 51 companies. After protests, this was restricted to the three main companies in Suuti’s portfolio. “After once diluting the conflict of interest clause, the government wasn’t in favour of making further relaxations. Hence, it rejected all the conditional bids,” a source added.
Sectoral entities said the government would have to relax the selection process if it wanted to get more banks on board.
“Bankers that get the mandate need to get investment commitments from their clients. Foreign banks are typically instrumental in getting investments from overseas investors. If the government feels they are needed for such a huge share transaction, it will have to rethink the selection process,” said an investment banker, asking not to be named.
LITTLE TO CHOOSE FROM
About a dozen investment banks made bids for Suuti mandate
Only four investment banks invited to make the final presentation
None of the foreign investment banks make the cut
All banks making ‘conditional bids’ rejected by Suuti
Bankers wanted relaxations from pre-conditions set by Suuti
Government not in favour of further relaxations