The Indian government has announced its plans to divest 7% equity in Housing and Urban Development Corp. Ltd (Hudco) via an offer for sale (OFS) scheduled for October 18-19. This strategic move is expected to generate approximately ₹1,100 crore in revenue.
Investor Participation: The offer for sale will commence on October 18 for non-retail investors, with retail investors being able to bid on the following day.
Green Shoe Option: The government intends to divest 7% equity, including a green shoe option of 3.5%.
Floor Price: The floor price for the offer is set at ₹79 per share, which is 12% lower than the closing price of ₹89 on the BSE as of the previous Tuesday.
Number of Shares: Approximately 140 million shares will be put up for sale, with a total value of around ₹1,106 crore.
Retail Discount: Notably, there will be no retail discount offered for the OFS, as confirmed by Hudco in a filing with the BSE.
Compliance with SEBI Norms
One of the primary reasons for the OFS is to ensure compliance with the Securities and Exchange Board of India’s (SEBI) minimum public shareholding norms. Currently, the government holds an 81.8% stake in Hudco. By divesting 7% of its shares, the government’s ownership will decrease to 74.8%, which is below the maximum permissible limit of 75%.
Government’s Divestment Strategy
This stake sale aligns with the government’s broader divestment strategy, which aims to reduce its holdings in listed companies in order to meet SEBI norms. The government’s objective is to raise revenue through such divestments.
Brokers for the Sale
Elara Securities (India), IDBI Capital Markets & Securities, and SBICAP Securities have been selected as brokers for the sale, facilitating the transaction between the government and potential investors.
Utilization of Proceeds
The revenue generated from this stake sale will be channeled to the government’s treasury, contributing to its goal of raising ₹51,000 crore from disinvestment in the fiscal year 2024.
As of October 17, the government had already raised ₹6,950 crore from disinvestment activities. This amount primarily resulted from selling a 3% stake in Coal India Ltd, a 5.36% stake in Rail Vikas Nigam Ltd, and a 4.92% share sale in SJVN Ltd.
Key takeaways for competitive examinations
- Secretary of the Department of Investment and Public Asset Management: Tuhin Kanta Pandey