The government on Friday revised the rules for appointment of investment bankers for the Rs 40,000-crore disinvestment programme. This is the second time in a month the government has changed the rules. The earlier amendment, which imposed severe restrictions on bankers, put off most bidders.
The new rules considerably water down the restrictions concerning bankers handling deals of companies in the same line of business as the divesting entity.
“The interested parties would also be required to submit a list of or disclose any mandated transactions which are in the same line of business as that of the company (being disinvested),” a finance ministry memorandum dated June 8 said.
The new rules came into effect as part of the revised Request for proposal floated by the department of disinvestment for the initial public offering of National Building Construction Corp Ltd.
The last day for bidding has also been extended for the second time to June 15.
The rules require that the bidding banker has to confirm in writing that there is no conflict of interest as on the date of submitting their proposal for appointment. They also have to undertake that, “in future, if such a conflict of interest arises, the Adviser would immediately intimate the Government/Company (being disinvested) of the same.”
The new rules said that once appointed, the Adviser shall keep the Company/ Government informed of any mandate/contract entered into to advise entities engaged in the same line of business as that of the Company being disinvested.
Earlier the government wanted the banker to give an undertaking that they were not handling any transactions in the same line of business at the time of bidding for the divestment mandate. It also said the bankers once appointed would need prior government approvals to take any new mandate in the same line of business.
This rule effectively ruled out some 22 top investment banks which were handling other real estate issues from bidding for NBCC IPO mandate. Even National Fertiliser Ltd Could not find bankers for its money raising efforts, said the banker quoted earlier. “Some banks had approached NFL on June 7. But they demanded undertaking, which bankers refused and returned without bidding,” he said. Deadline for NFL has also been extended to June 16.
Even after extending the initial deadline from May 26 to June 10, the bankers did not evince any interest, forcing the latest change of rules by the department of disinvestment.
A senior official with a domestic investment bank said the conflict of interest rules should take into consideration the deals done by foreign banks in other countries also. “If the concern is that they are selling to the same investors overseas, even foreign deals should be brought within the ambit of the rules. Otherwise it will be unfair for the local banks.”
A foreign investment bank however said that such an argument may benefit the domestic banks, but is not practical. "There is no logic," he added.