DIVESTMENT

Poor timing led to failure of IPOs of defence PSUs

hal-ap [File] Representative image | AP

According to sources in the ministry of defence, poor timing of the launch of initial public offering (IPO) of two defence public sector undertakings (PSU), including the profit making and largest defence company Hindustan Aeronautics Limited (HAL), is one of the key reasons why it failed to attract investors. Earlier this month, defence PSU Bharat Dynamics Limited (BDL) and Hindustan Aeronautics Limited (HAL) hit market with an aim to divest a portion of stakes in these defence PSUs and raise about Rs 5,200 crore as part of its Rs 1 lakh crore disinvestment programme for 2017-18.

"IPOs were launched towards the end of the financial year and at a time when the cluster of other IPO options were available with the investors. Moreover, the HAL's IPO was over-priced," a senior official in the defence ministry told THE WEEK, on condition of anonymity. Bengaluru-based HAL, designs and develops a wide range of fixed wing and rotary wing aircrafts, aero-engines and avionics.

Eventually, the Life Insurance Corporation of India (LIC) had to come in to rescue HAL, as the LIC invested Rs 2,900 crore by subscribing 70 per cent of HAL's Rs 4,200 crore initial public offering.

Similarly, BDL, which manufactures guided missile systems including SAMs (surface to air missiles) and ATGMs (anti-tank guided missiles) to the Indian armed forces, came out with an offer of 12 per cent shareholding to fetch the exchequer up to Rs 960 crore, also did not do well in the stock market.

"Last year, eight out of ten public sector undertakings, failed to achieve good results, which led to hesitation in the minds of the investors. Moreover, market was not at its peak and sentiments were not in favour of investors. Interestingly, Cochin Shipyard, another defence PSU attracted good huge response from the investors and did really well," said another officer in the ministry.

Aiming to raise money, the government has also planned to disinvest some of its stake in BEML. The government has given an in-principle approval of strategic disinvestment of 26 per cent shareholding of BEML out of the government shareholding of 54.03 per cent with transfer of management and in BEL, during 2017-2018, the government has sold 2,98,84,329 equity shares through Exchange Traded Fund (ETF) of market transaction.

Moreover, the government has decided to disvest shares of 17.5 per cent in GRSE, 10 per cent in MDL, 25 per cent in MIDHANI through IPOs and a reservation of upto 5 per cent in issue shareholding to eligible employees of GRSE, MDL and MIDHANI.