The Telegraph
Since 1st March, 1999
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Banks warm up to PSU staff bids

Mumbai, April 20: Banks have sniffed a lucrative funding proposition in the plan to allow employees to bid for public-sector undertakings (PSUs) being put up for sale.

The government last week said staff could join the race by floating a joint venture or a special purpose vehicle backed by venture capitalists or financial institutions.

Sources said though there have been only some cases of employees keen to bid for a PSU, Bank of India (BoI) and ICICI Venture Fund have lent to support some initiatives.

Bankers say it is early days yet to speculate how big a business this could be, they are optimistic that the Centre’s decision will prompt a flurry of loan proposals.

“There have been a limited number of cases in which employees have sought to buy the government’s equity with management control in PSUs put on the block. Even so, we feel there is a potential for banks to assist them. However, it is early to say anything concrete at this point,” an official from a nationalised bank said.

One of the few instances where the staff wanted to throw their hat in the ring was Manganese Ore (India), a PSU in which the government decided to divest 51 per cent to a strategic partner.

The employees association of the company said it would be ready to buy the shares being sold off at the reserve price. Sources say it produced a letter showing Bank of India would provide the loan required to wrap up the deal.

In the case of Engineering Project (India), where the government wanted to disinvest 74 per cent of its equity to a strategic partner, employees formed a consortium with ICICI Venture Fund.

The consortium, having fulfiled the pre-qualification criteria, urged the government in June last year that instead of inviting price bids for selling up to 74 per cent, the same slice of equity should be offered to employees and ICICI Venture Fund at a reserve price determined by the advisers.

In some cases, the ministry of disinvestment received proposals from employees, who could not satisfy the financial criterion or withdrew voluntarily from the bidding process.

An example of this was Air-India, where its Pilots Guild had submitted an expression of interest. However, it was rejected since it did not fulfil the prescribed minimum net-worth criteria.

On the other hand, the officers association of Engineers India (EIL) had submitted an expression of interest when the government announced its plan to sell 51 per cent in favour of strategic partner and 10 per cent to employees. The gamble came unstuck as the association withdrew from the disinvestment process.

The Cabinet Committee on Disinvestment framed guidelines last Tuesday to allow PSU employees to bid for their own companies when put up for strategic sale.

It had then said that 15 per cent of the total strength of the PSU or 200 employees, whichever is lower, can bid. Similarly, staff were allowed to bid independently or in partnership with banks, venture capital firms or FIs by forming joint ventures or SPVs, though they should contribute as little as 10 per cent of the financial bid.

The Cabinet Committee on Disinvestment (CCD) decided that employee bids will be exempted from the turnover criteria but will have to fulfil the net-worth criteria.

Banks, venture capital firms or financial institutions were allowed to support such bids, though they could contribute as little as 10 per cent of the financial bid.

However, staff cannot join hands with any corporate group as ministers felt they could be manipulated by the corporate group by using them as its proxy.

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