The Telegraph
Since 1st March, 1999
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Maruti fetches govt Rs 993 cr
- IPO cut-off price fixed at Rs 125; greenshoe option exercised

New Delhi, June 21: The government today announced a cut-off price of Rs 125 for the 7.94 crore shares of carmaker Maruti Udyog it had placed in the market through an initial public offering (IPO).

The government also announced it had grossed some Rs 993 crore from the largest public issue in the last five years which saw small investors flocking back to the capital markets after years of distrust triggered by a series of capital market scams that left many small investors penniless.

Disinvestment minister Arun Shourie said some 60 per cent of the issue has been allotted to retail investors while the rest would be shared by institutional investors against an initial announcement that just a quarter of the issue would be reserved for the retail segment.

“It’s an overwhelming response,” said Shourie about the issue that had been oversubscribed 10 times. Of the 60 per cent kept apart for the retail market, Shourie said 15 per cent would go to investors who had applied for more than 1,000 shares while the rest would go to small investors.

Disinvestment ministry officials were quick to point out that not only was this the largest offering through the capital market in the last five years, it “was also the largest issue sold through the book building route in Indian corporate history”.

The IPO, initially priced at Rs 115, was to have been for 7.22 crore shares with a greenshoe option for another 10 per cent. “But with the issue becoming a huge success, we decided to exercise the greenshoe option,” Shourie said.

As a result, the government's equity in Maruti Udyog Ltd (MUL) will come down to marginally above 17 per cent. Even this stake is likely to be offloaded in the next calendar year. Suzuki Motor Corporation, which now manages the automobile company, controls 54.2 per cent of the stock.

Shourie, who spoke to Indian reporters through a video conferencing facility from Thailand where he is representing India at a regional meet, said, “This is a vote in favour of Maruti, objectivity of the process and India.”

However, when asked whether he would now vote in favour of the retail route for disinvestment as against his earlier favoured strategic sale route, Shourie remained non-committal and said it was for the Cabinet to take such decisions.

Shourie, however, indicated the government would now take up retail sales in aluminium major Nalco and petroleum marketer BPCL. The minister said, “The meeting of the cabinet committee on disinvestment will be convened in the first week of July after Prime Minister Atal Bihari Vajpayee returns from China.” He added the Securities and Exchange Board of India (Sebi) was likely to relax norms to allow domestic and American Depository Receipt issues to be put on the market simultaneously.

While the BPCL issue is likely to fructify by November this year, the market is also likely to see a public issue from the government for a 10 per cent stock sale in gas major GAIL.

Disinvestment ministry officials said the price was fixed at Rs 125 as the number of bids at Rs 125, for about 33 crore shares exceeded the bids at Rs 120 which were for 18 crore shares.

The overall bid range was between the floor price of Rs 115 and an unusually optimistic high of Rs 390. In all, over 1.5 lakh retail investors have bid for the stock surprising many analysts who believed the intrinsic value of Maruti should see the stock priced at a realistic premium of Rs 70.

Although Maruti has a 50 per cent shareholding of the Indian car market and has very low overhead costs, its price earnings ratio of 24.7 (calculated at the pre-listing cut-off price of Rs 125) does not warrant the sort of frenzied welcome that the IPO has received.

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